Homework Answers
1. specialize in tomatoes because their opportunity cost
of tomatoes is lower than country A's.
(Opportunity cost of 1 tomato in country A = Total bananas given
up/Total tomatoes produced = 25/5 = 5 bananas
Opportunity cost of 1 tomato in country B = Total bananas given
up/Total tomatoes produced = 18/6 = 3 bananas
So, Country B has comparative advantage in tomatoes because of
lower opportunity cost. Thus, country B will benefit if they
specialize in tomatoes.)
2. could both benefit from trade because comparative
advantage exists.
(Opportunity cost of 1 fence for Tom = Total dishes given up/Total
fence built = 16/4 = 4 dishes
Opportunity cost of 1 fence for Jerry = Total dishes given up/Total
fence built = 14/7 = 2 dishes
So, Jerry has comparative advantage in fence because of lower
opportunity cost and thus they can both gain from trade because
comparative advantage exists.)
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