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Refer to the information provided in Figure 20.2 below to answer the questions that follow. England The U.S. 80 60 Cars Cars
Refer to Figure 20.2. the theory of comparative advantage suggests that the United States should export both trucks and cars.
For inferior goods, demand will fall when price decreases income increases price increases. income decreases.
If an economy is producing on its production possibility frontier but is not producing what people want, the economy is exper
A price below the equilibrium price results in a shortage. a further price fall. excess supply a surplus.
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Answer #1

1. England's opportunity cost of producing trucks = 60/40= 1.5 cars.

U.S opportunity cost of producing trucks = 80/20= 4 cars.

Because England has a lower opportunity cost for producing trucks , this implies that England has a comparative advantage in producing trucks. Therefore, England should export trucks and imports cars . And U.S should export cars and import trucks. Hence, option(D) is correct.

2. For inferior goods, demand will fall when income increase . Hence, option(B) is correct.

3. If an economy is producing on its PPF but is not producing what people want, the economy is not allocatively efficient but not productively efficient. Hence, option(C) is correct.

4. A price below the equilibrium price results in quantity demnaded exceeds quantity supplied which results in shortage. Hence, option(A) is correct.

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