Suppose That a Worker in Radioland Can Produce Either 4

question 61

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:

Tax Per Unit

A fixed amount of tax imposed on a product or service, regardless of its selling price.

Producer Surplus

The divergence between what producers are prepared to agree on for a sale of goods or services and the resultant financial gain.

Consumer Surplus

represents the difference between what consumers are willing to pay for a good or service and what they actually pay, indicating economic welfare.

Tax Revenue

The income generated by the government through the imposition of taxes on goods, services, income, and transactions.