Refer to the following table and assume that the total labor supply in Taiwan is 4 and the total labor supply in Vietnam is 8.

a. What is the opportunity cost of 1 unit of telephones in terms of radios in Taiwan? In Vietnam?

b. Determine whether each of the following statements is true or false. Provide a brief explanation of why it is true or false.

i. Taiwan has an absolute advantage in the production of both telephones and radios.

ii. Vietnam has a comparative advantage in the production of telephones.

iii. One possible production combination for Vietnam is 40 units of telephone and 80 units of radio per hour.

c. If the two countries engage in international trade, what will Taiwan produce and how many?

d. What is the real wage in Taiwan in terms of radio? What is the real wage in Vietnam in terms of telephone?

e. Will Taiwan and Vietnam trade if the international relative price of telephone is 3?  Briefly explain why or why not.

Transcribed Image Text:

Number of telephones produced per hour Number of radios produced per hour Comparative advantage Taiwan Vietnam Absolute 10 50 ? 5 10 ~ Advantage ? ?