Question

table 34-1

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$$\begin{tabular}{|ll|ll|} \\hline \\textbf{country a} & & \\textbf{country b} & \\\\ good x & good y & good x & good y \\\\ \\hline 90 & 0 & 30 & 0 \\\\ 60 & 30 & 20 & 20 \\\\ 30 & 60 & 10 & 40 \\\\ 0 & 90 & 0 & 60 \\\\ \\hline \\end{tabular}$$

refer to table 34-1. country b is the lower opportunity cost producer of

• good x.
• good y.
• both goods.
• neither good.

Explanation:

Analyze the production possibilities for Country A

For Country A, the trade-off between Good X and Good Y is linear:

• Maximum Good X = 90 (when Good Y = 0)
• Maximum Good Y = 90 (when Good X = 0)

To find the opportunity cost of producing 1 unit of Good X in Country A:

$$ \text{Opportunity Cost of 1X}_A = \frac{\Delta Y}{\Delta X} = \frac{90}{90} = 1\text{ unit of Y} $$

To find the opportunity cost of producing 1 unit of Good Y in Country A:

$$ \text{Opportunity Cost of 1Y}_A = \frac{\Delta X}{\Delta Y} = \frac{90}{90} = 1\text{ unit of X} $$

Analyze the production possibilities for Country B

For Country B, the trade-off between Good X and Good Y is also linear:

• Maximum Good X = 30 (when Good Y = 0)
• Maximum Good Y = 60 (when Good X = 0)

To find the opportunity cost of producing 1 unit of Good X in Country B:

$$ \text{Opportunity Cost of 1X}_B = \frac{\Delta Y}{\Delta X} = \frac{60}{30} = 2\text{ units of Y} $$

To find the opportunity cost of producing 1 unit of Good Y in Country B:

$$ \text{Opportunity Cost of 1Y}_B = \frac{\Delta X}{\Delta Y} = \frac{30}{60} = 0.5\text{ units of X} $$

Compare opportunity costs between countries

We compare the opportunity costs to determine which country has the comparative advantage (lower opportunity cost) for each good:

For Good X:

• Country A's opportunity cost is \(1\text{ Y}\).
• Country B's opportunity cost is \(2\text{ Y}\).
• Country A is the lower opportunity cost producer of Good X.

For Good Y:

• Country A's opportunity cost is \(1\text{ X}\).
• Country B's opportunity cost is \(0.5\text{ X}\).
• Country B is the lower opportunity cost producer of Good Y.

Answer:

• good X.
• good Y. (Correct answer)
• both goods.
• neither good.