Chapter 2.

2.1 Screen 1 of 1

Question 15

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You must read each slide, and complete any questions on the slide, in sequence.

Question

A. The accompanying table gives how many skis and sleds can be produced in Denmark and Iceland using one day’s worth of labor.

Country	Skis	Sleds
Denmark	4	12
Iceland	3	6

Using the data from the table, RRxpm9FkPZG4LA2x23jIs45306A= has the absolute advantage in producing skis and RRxpm9FkPZG4LA2x23jIs45306A= has the absolute advantage in producing sleds.

A country has an absolute advantage in the production of a good when that country can produce more of the good than another country. In the given example, Denmark can produce 4 skis while Iceland can only produce 3 skis, and Denmark can produce 12 sleds while Iceland can only produce 6 sleds. Therefore, Denmark has an absolute advantage in the production of both skis and sleds. For further review, see section “Absolute and Comparative Advantage."

Question

B. Use the figures in the table above to fill out the table below. (Round your answers to two decimal places as needed.)

	Denmark opportunity cost	Iceland opportunity cost	Country with comparative advantage
Skis	607M7xmPORU= sleds	XvVM00l89Is= sleds	15p+JwvyRWblsG90n2AXEyCsAxw=
Sleds	VsbdfiDwRN6GK82O skis	LuGl/wb/0iJ4X3x2l5OU3uIM89M= skis	RRxpm9FkPZG4LA2x23jIs45306A=

To find the opportunity cost for the production of skis in Denmark, divide 12 by 4: 12/4 = 3. This means for every one ski that Denmark produces, its opportunity cost is 3 sleds. To find the opportunity cost for the production of sleds in Denmark, divide 4 by 12: 4/12 ≈ 0.33. This means for every one sled that Denmark produces, it could have made about 0.33 of skis. Note that the values 0.33 and 3 are reciprocals of each other. To find the opportunity cost for the production of skis in Iceland, divide 6 by 3: 6/3 = 2. This means for every one ski that Iceland produces, it could have produced 2 sleds. To find the opportunity cost for the production of sleds in Iceland, divide 3 by 6: 3/6 = 0.5. This means for every one sled that Iceland produces, it could have produced 0.5 of skis. Note that the values 0.5 and 2 are reciprocals of each other. Iceland can produce skis at a lower opportunity cost than Denmark (2 sleds versus 3 sleds), therefore Iceland has a comparative advantage in the production of skis. Denmark can produce sleds at a lower opportunity cost than Iceland (0.33 skis versus 0.5 skis), therefore Denmark has a comparative advantage in the production of sleds. For further review, see section “Absolute and Comparative Advantage."

Question

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

Correct! For further review, see section “Absolute and Comparative Advantage."

Sorry, it is comparative advantage that generates gains from trade. Each country should specialize in producing the good with the lowest opportunity cost and then trade. This suggests that Denmark should pour its resources into producing sleds and Iceland should pour its resources into producing skis. For further review, see section “Absolute and Comparative Advantage.”