Question

Question 1 (2 points) 12 points) 1. Countries decide to specialize and trade based on their Question 2 (1 point) India and the U.S produce both microprocessors and cell phones It takes 12 hour of labor to produce 1 batch of microprocessors in the U.S. and in India, It takes India 1/2 hour of labor to produce 1 box of cell phones It takes the U.S. 2. hower of labor to prokuce I box of cell phones. 11 point 2. Before trade, what is the opportunity cost (in terms of cell phones) for the U.S. of producing I batch of microprocessors? 4 cell phones 1/4 cell phone 1 cell phone 1/2 cell phone

Answer 1

Question 1) Countries decide to specialize and trade based on their comparative advantage.

Question 2) Before trade, the opportunity cost for the U.S. of producing 1 batch of microprocessors =

= 0.5 /2 = 1/4 cellphones.

So, option 2 is the correct answer.

Question 3) Before trade, the opportunity cost of producing for India 1 batch of microprocessors =

= 0.5/0.5 = 1 cellphone.

So, option 2 is the correct answer.

Question 4) We can see that U.S. has a comparative advantage in the production of microprocessors. This is because the opportunity cost of producing them is less in U.S. than the opportunity cost of producing them in India. So, option 4 is the correct answer.

Question 5) As there is a lower opportunity cost of producing cellphone in India than the opportunity cost of producing cellphones in U.S., India has a comparative advantage in the production of cellphones. So, option 2 is the correct answer.

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