Suppose that in the United States producing a car takes 10 000 hours of labor andproducing a shirt takes 2

Question

Suppose that in the United States, producing a car takes 10,000 hours of labor and

producing a shirt takes 2

hours of labor. In China, producing a car takes 40,000 hours of labor

and producing a shirt takes 4 hours of labor.

a. What is the opportunity cost of producing 1 car for the United States? Repeat the

same computation for China.

b. What is the opportunity cost of producing 1 shirt for the United States? Repeat the

same computation for China.

c. Which country has a comparative advantage in producing cars?

d. Which country has a comparative advantage in producing shirts?

e. Can these countries benefit from trade? Explain.

f. If they trade, which country would export which product?

g. What are the range of prices the countries would trade?

Microeconomics