Assume Saudi Arabia and the United States face the production possibilities for oil and cars shown in the accompanying table.

1. What is the opportunity cost of producing a car in Saudi Arabia? In the United States?
2. What is the opportunity cost of producing a barrel of oil in Saudi Arabia? In the United States?
3. Which country has the comparative advantage in producing oil? In producing cars?
4. Suppose that in autarky, Saudi Arabia produces 200 million barrels of oil and 3 million cars and that the United States produces 300 million barrels of oil and 2.5 million cars. Given this, what is Saudi Arabia capable of consuming? What is the United States capable of consuming?
5. Suppose now that each country specializes in the good in which it has the comparative advantage, and the two countries trade.

5a) What is the total quantity of oil produced?

5b) What is the total quantity of cars produced?

5c) Is it possible for Saudi Arabia to consume 400 million barrels of oil and 5 million cars and for the United States to consume 400 million barrels of oil and 5 million cars? If so, what is the relative price at which trade is occurring? Explain.

Saudi Arabia United States Quantity of oil Quantity of oil (millions of Quantity of (millions of Quantity of barrels) cars (millions) barrels) cars (millions) 0 10.0 200 100 7.5 400 200 5.0 600 300 2.5 800 400 0