Table 3-26 Assume That Japan and Korea Can Switch Between Producing Cars

question 516

Multiple Choice

Table 3-26
Assume that Japan and Korea can switch between producing cars and producing airplanes at a constant rate.
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-Refer to Table 3-26. Assume that Japan and Korea each has 2400 hours available. If each country spends all its time producing the good in which it has a comparative advantage and trade takes place at a price of 12 cars for 6 airplanes, then

• A)Japan and Korea will both gain from this trade.
• B)Japan will gain from this trade, but Korea will not.
• C)Korea will gain from this trade, but Japan will not.
• D)neither Japan nor Korea will gain from this trade.

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Definitions:

Allocation Base

An allocation base is a measure or quantity (like direct labor hours or machine hours) that is used to assign costs in an equitable manner.

Overhead Costs

Expenses associated with running a business that cannot be directly attributed to a specific product or service, such as rent, utilities, and administrative expenses.

Plantwide Overhead Rate

A single overhead rate applied to all production activities, calculated by dividing the total factory overhead by an allocation base, such as direct labor hours.

Direct Labor Hours

The total hours of labor directly involved in the manufacturing or production process of goods and services.