Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate.

-Refer to Table 3-2.Aruba should export
A) coolers and import radios.
B) radios and import coolers.
C) both goods and import neither good.
D) neither good and import both goods.

Question

Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate.
 
-Refer to Table 3-2.Aruba should export
A) coolers and import radios. 
B) radios and import coolers. 
C) both goods and import neither good. 
D) neither good and import both goods.

Quizplus · Accepted Answer

As per the table, the opportunity cost of producing one cooler in Aruba is two radios whereas the opportunity cost of producing one radio is 1/2 cooler. On the other hand, the opportunity cost of producing one cooler in Iceland is 1/3 of a radio and the opportunity cost of producing one radio is three coolers. Therefore, Aruba has a comparative advantage in producing radios while Iceland has a comparative advantage in producing coolers. Therefore, Aruba should export radios and import coolers.

Table 3-2 Assume That Aruba and Iceland Can Switch Between Producing Coolers