ECON week 10

Econ 201 - NelsonUnit 10 Assignment Name________________________

I . India and Zaire both produce tea and coffee . Use the production possibilities data below to answer the following (Coffee and tea production are both measured in millions of pounds a year A . What is the opportunity cost of a pound of tea in Zaire

Opportunity cost is equal to amount of coffee production (in terms of millions pound ) foregone as economy resources are directed to production of tea . In this case it is 7 (84-63 /3 7

B . What is the opportunity cost of

a pound of tea in India

This is amount of coffee production (Millions of pounds ) foregone as economy resources are directed to production of tea . In this case it is 2 (64-48 /8 2 million pounds

C . Which country has a comparative advantage in tea ? Explain

India has a comparative advantage . Her opportunity cost is lower as compared to that of Zaire

D . Which country has a comparative advantage in coffee ? Explain

India also has a comparative advantage in production of coffee . Its opportunity cost associated with production coffee is low as compared to that of Zaire

E . If Zaire was producing 6 million pounds of tea and 42 million pounds of coffee , and India was producing 16 million pounds of tea and 32 million pounds of coffee , show that specialization according to the law of comparative advantage will result in greater goods

Zaire should specialize in production of coffee where she has a...