Suppose That a Worker in Country a Can Make Either

question 86

Multiple Choice

Suppose that a worker in Country A can make either 10 iPods or 5 tablets each year.Country A has 100 workers.Suppose a worker in Country B can make either 2 iPods or 10 tablets each year.Country B has 200 workers.Which of the following is true?

• A) Country B should produce tablets and Country A should produce iPods, and they could benefit from trade.
• B) Country B should produce iPods and Country A should produce tablets, and they could benefit from trade.
• C) Neither country can benefit from trade since no comparative advantage exists.
• D) Because Country B has the absolute advantage in producing tablets, they should specialize in the production of tablets.

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Definitions:

Modigliani

Refers to Franco Modigliani, an Italian-American economist known for his work on corporate finance, the Modigliani-Miller theorem, and the life-cycle hypothesis of saving.

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