Suppose That a Worker in Radioland Can Produce Either 4

question 166

Multiple Choice

Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a worker in Teeveeland can produce either 2 radios or 5 televisions per year. Each nation has 100 workers. If Radioland trades 100 televisions to Teeveeland in exchange for 100 radios each year, what is the impact on each country's maximum consumption of new radios and televisions per year?

• A) higher than it would be in the absence of trade because of the gains from trade
• B) the same as it would be in the absence of trade
• C) less than it would be in the absence of trade because neither country is specializing in the product for which it has a comparative advantage
• D) less than it would be in the absence of trade because Teeveeland has an absolute advantage in both goods and so would lose if it trades with Radioland

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Definitions:

Price Elasticity

A metric for assessing how much demand for a product fluctuates with its price.

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A measure of how sensitive the quantity demanded of a good is to a change in its price.