Author Question: Refer to Table 2-11. This table shows the number of labor hours required to produce a cell phone and ... (Read 383 times)

lbcchick · **on:** Jun 29, 2018

Refer to Table 2-11. This table shows the number of labor hours required to produce a cell phone and a board foot of lumber in Estonia and Finland.

a. Which country has an absolute advantage in the production of cell phones?
b. Which country has an absolute advantage in the production of lumber?
c. What is Estonia's opportunity cost of producing one cell phone?
d. What is Finland's opportunity cost of producing one cell phone?
e. What is Estonia's opportunity cost of producing one board foot of lumber?
f. What is Finland's opportunity cost of producing one board foot of lumber?
g. If each country specializes in the production of the product in which it has a comparative advantage, who should produce cell phones?
h. If each country specializes in the production of the product in which it has a comparative advantage, who should produce lumber?

Question 2

What adjustments must be made to total income to make it equal GDP?

What will be an ideal response?

Hdosisshsbshs · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

a. Finland has an absolute advantage in the production of cell phones.
b. Finland has an absolute advantage in lumber production.
c. Estonia's opportunity cost of producing one cell phone is 4 board feet of lumber.
d. Finland's opportunity cost of producing one cell phone is 4.5 board feet of lumber.
e. Estonia's opportunity cost of one board foot of lumber is 0.25 units of a cell phone.
f. Finland's opportunity cost of one board foot of lumber is 0.22 units of a cell phone.
g. Estonia should specialize in producing cell phones.
h. Finland should specialize in producing lumber.

Answer to Question 2

Total income is net domestic product at factor cost. To convert it to gross domestic product at market prices, we must add the depreciation of capital and add indirect taxes minus subsidies.