Author Question: Consider the following weekly production possibilities of gloves and hats in Panama and Russia: ... (Read 62 times)

Wadzanai · **on:** Jun 30, 2018

Consider the following weekly production possibilities of gloves and hats in Panama and Russia:

Russia Panama
Gloves 20 180
Hats 80 90

What is each country's opportunity cost of producing gloves and hats? If the countries could, should they trade?

Question 2

If currency outside of banks is 800 billion; traveler's checks are 10 billion; checkable deposits owned by individuals and businesses are 700 billion; savings deposits are 4,000 billion; small time deposits are 1,000 billion; and money market

funds and other deposits are 800 billion, then M2 equals ________ billion.
A) 7,310 B) 5,800 C) 710 D) 2,510 E) 1,510

heyhey123 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Russia's opportunity cost of a glove is 4 hats, while Panama's opportunity cost of a glove is 1/2 of a hat. The opportunity costs of hats are the reciprocals of these. Even though Panama has an absolute advantage in the production of all goods, it will still make sense for Panama to specialize in glove production (because of its comparative advantage) and trade for hats, as Russia has the comparative advantage in hat production.

Answer to Question 2

A