1) Canada can make a book in one hour, and Mexico can make a book in three hours. Canada can make a car in 100 hours, and Mexico can make a car in 150 hours.
If Mexico and Canada traded, it would be advantageous for both countries if Mexico specialized in _______ and Canada specialized in ______.
| A. |
nothing; that is, if they did not trade. |
|
| B. |
books; cars |
|
| C. |
books; books |
|
| D. |
cars; books |
|
| E. |
cars; cars |
Homework Answers
Let total hours be 300 for both countries
Canada can make 300 books or 3 cars
Mexico can make 100 books or 2 cars
Opportunity cost of 1 car in Canada = 300/3 = 100 books
Opportunity cost of 1 car in Mexico = 100/2 = 50 books
Thus, Mexico has lower opportunities cost in car production
Thus,
Mexico should specialize in cars and Canada must specialize in books
----
1. Both computers and food (as Philippines is producing less of both goods as compared to Australia)
2. Opportunity cost of 1 unit food in Australia = 1000/2000 = 0.5 computers
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