Calculating the marginal opportunity cost of services in two countries.
There are two goods: factory-stuff and services.
There are two countries: Us and Them.
"Us" are worse at producing everything, as described by the productivity table below:
Worker-hours needed to produce one unit of each good
|
Factory-Stuff
|
Services
|
Us
|
10
|
10
|
Them
|
1
|
5
|
(a) Illustrate what is the marginal opportunity cost of services in each nation?
(b)Who has the comparative advantage in factory-stuff?
(c)Assuming that factory-stuff and services are both tradable goods, what terms of trade would be beneficial to both Us and Them, relative to no trade? (You must provide numbers for the terms of trade.)
(d)Of the terms of trade range described in (c), what terms of trade would we ("Us") most prefer?