Question

Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a worker in Teeveeland can produce either 2 radios or 4 televisions per year. Each nation has 100 workers. Also suppose that each country completely specializes in producing the good for which it has a comparative advantage. If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year, then each country’s maximum consumption of new radios and televisions per year will be

a. 300 televisions and 100 radios in Radioland and 300 radios and 100 televisions in Teeveeland.
b. 300 televisions and 100 radios in Teeveeland and 300 radios and 100 televisions in Radioland.
c. 100 televisions and 200 radios in Radioland and 100 radios and 200 televisions in Teeveeland.
d. 400 televisions and 100 radios in Teeveeland and 400 radios and 100 televisions in Radioland.

Answer 1

Comparative advantage is based on opportunity costs. Teeveeland has a lower opportunity cost for producing televisions, thus it should specialize in television production. Correct answer is 400 televisions and 100 radios in Teeveeland and 400 radios and 100 televisions in Radioland.

Step-by-step explanation:

The answer depends on the concept of comparative advantage, which is determined by the opportunity cost of producing one additional unit of a good in comparison to another good. In this case, we are examining the opportunity costs of producing televisions in Radioland and Teeveeland. Firstly, let's determine the opportunity costs:

• For Radioland: The opportunity cost of producing 1 television is the 4 radios that could have been produced.
• For Teeveeland: The opportunity cost of producing 1 television is 1/2 (0.5) of a radio.

Comparing these, Teeveeland has a lower opportunity cost of producing televisions and should therefore specialize in television production, given its comparative advantage. Moreover, if they specialize and then trade, Radioland can consume up to 400 radios (after trading 100 for televisions) and 100 televisions (received from Teeveeland), while Teeveeland can consume up to 400 televisions (produced by specialising) and 100 radios (received from Radioland). Thus, the correct answer is option d: 400 televisions and 100 radios in Teeveeland and 400 radios and 100 televisions in Radioland.

Answer 2

(B) 300 televisions and 100 radios in Teeveeland and 300 radios and 100 televisions in Radioland

Step-by-step explanation:

Radioland

Each worker can produce either 4 radios or 1 television

The country has a total of 100 workers

By specializing in the goods it has a comparative advantage, Radioland will only produce radios.

Therefore, the total number of radios it will produce per year

= 4 radios per worker * 100 workers

= 400 radios.

If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year, Radioland will end up with

= 400 radios - 100 radios (to Teeveeland) + 100 televisions (from Teeveeland)

= 300 radios + 100 televisions in Radioland.

Teeveeland

Each worker can produce either 2 radios or 4 televisions

The country has a total of 100 workers

By specializing in the goods it has a comparative advantage, Teeveeland will only produce televisions.

Therefore, the total number of televisions it will produce per year

= 4 televisions per worker * 100 workers

= 400 televisions.

If Teeveeland trades 100 televisions to Radioland in exchange for 100 radios each year, Teeveeland will end up with

= 400 televisions - 100 televisions (to Radioland) + 100 radios (from Radioland)

= 300 televisions + 100 radios in Teeveeland.