Economics Today (the Macro View): Chapter 32: Comparative Advantage and the Open Economy

Terms in this set (63)

Consider the table to the​ right, which shows possible combinations of hourly outputs of modems and flash memory drives in South Shore and neighboring East​ Isle, in which opportunity costs of producing both products are constant.

In South​ Shore, the opportunity cost of producing 1 modem is 2.0 flash drives.
In East​ Isle, the opportunity cost of producing 1 modem is 0.50 flash drives.

The nation having a comparative advantage in producing modems is therefore _____​, while the nation with the comparative advantage in flash drive production is _____.

1) Which one of the following rates of exchange of modems for flash memory drives will be acceptable to both ​nations?
A. 3.0 modems for 1 flash drive.
B. 1.0 modem for 1 flash drive.
C. 1 flash drive for 2.5 modems.
D. None are acceptable to both countries.

Now suppose that each nation decides to use all available resources to produce only the good for which it has a comparative advantage and to engage in trade at the single feasible rate of exchange you identified above.

Prior to specialization and​ trade, residents of South Shore chose to produce and consume 30 modems per hour and 90 flash drives per​ hour, and residents of East Isle chose to produce and consume 40 modems per hour and 30 flash drives per hour.

​Now, residents of South Shore agree to export to East Isle the same quantity of South​ Shore's specialty good that East Isle residents were consuming prior to engaging in international trade. The quantity of East​ Isle's specialty good that South Shore will import is
2) A. 40 modems.
B. 20 modems.
C. 30 modems.
D. 60 modems.