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Chapter 20: Q4. (page 430)

Suppose that the opportunity-cost ratio for sugar and almonds is 4S ≡ 1A in Hawaii but 1S ≡ 2A in California. Which state has the comparative advantage in producing almonds?

  1. Hawaii

  2. California

  3. Neither

Short Answer

Expert verified

The correct option is: b) California

Step by step solution

01

Step 1. Explanation

Comparative advantage is having a lower opportunity cost in the production of a commodity than others.

The opportunity cost of producing almonds in Hawaii will be 4 units of sugar (=4/1 sugar), and in California will be 1/2 unit of sugar (=1/2 sugar). California has a lower opportunity cost in the production of almonds. Thus, California has a comparative advantage in the production of almonds.

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Most popular questions from this chapter

Identify and state the significance of each of the following trade-related entities: (a) the WTO; (b) the EU; (c) the Euro Zone; and (d) NAFTA.

Assume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata:

Canswicki: 1 can baby formula ≡ 2 cans tuna fish

Tunata: 1 can baby formula ≡ 4 cans tuna fish

In what product should each nation specialize? Which of the following terms of trade would be acceptable to both nations: (a) 1 can baby formula ≡ 2 1/2 cans tuna fish; (b) 1 can baby formula ≡ 1 can tuna fish; (c) 1 can baby formula ≡ 5 cans tuna fish?

What form does trade adjustment assistance take in the United States? How does such assistance promote political support for free-trade agreements? Do you think workers who lose their jobs because of changes in trade laws deserve special treatment relative to workers who lose their jobs because of other changes in the economy, say, changes in patterns of government spending?
  1. We see quite a bit of international trade in the real world. And trade is driven by specialization. So why don’t we see full specialization—for instance, all cars in the world being made in South Korea, or all the mobile phones in the world being made in China? Choose the best answer from among the following choices.

  1. High tariffs.

  2. Extensive import quotas.

  3. Increasing opportunity costs.

  4. Increasing returns.

What is an export supply curve? What is an import demand curve? How do such curves relate to the determination of the equilibrium world price of a tradable good?
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