Pi = Price of iPhone Pm = Price of MacBook Li = Unit labor requirement for iPhon
ID: 1217867 • Letter: P
Question
Pi = Price of iPhone
Pm = Price of MacBook
Li = Unit labor requirement for iPhone production
Lm = Unit labor requirement for Macbook production
Pi/Pm = Relative price of iPhone to MacBook in the United States (U.S.)
Li/Lm = Opportunity cost of producing iPhone to MacBook in the U.S.
U.S. trade with Canada (* denotes Canada)
The following inequality Li / LM < Li* / LM* implies U.S. has Comparative Advantage in ________ production.
iPhone
MacBook
Either
LM > LM* means Canada is highly productive in MacBook production, therefore Canada has________ in MacBook production.
An absolute Disadvantage
A comparative Advantage
A comparative Disadvantage
An Absolute Advantage
Explanation / Answer
U.S. trade with Canada (* denotes Canada)
The following inequality Li / LM < Li* / LM* implies U.S. has Comparative Advantage in ___iphone_____ production. (less labor is required comparatively).
LM > LM* means Canada is highly productive in MacBook production, therefore Canada has An Absolute Advantage__ in MacBook production. (Because in a comparative advantage we look at opportunity cost of production relatively).