-Refer to the above table. If opportunity costs are constant, then the United States and Mexico will produce goods in which they have a comparative advantage and trade at a rate of exchange of
A)4 computers for 1 bicycle.
B)6 computers for 1 bicycle.
C)0.1 computer for 1 bicycle.
D)1 computer for 1 bicycle.

Question

-Refer to the above table. If opportunity costs are constant, then the United States and Mexico will produce goods in which they have a comparative advantage and trade at a rate of exchange of
A)4 computers for 1 bicycle. 
B)6 computers for 1 bicycle. 
C)0.1 computer for 1 bicycle. 
D)1 computer for 1 bicycle.

Quizplus · Accepted Answer

The United States has a comparative advantage in computers, and Mexico has a comparative advantage in bicycles. Therefore, the United States will produce and export computers, and Mexico will produce and export bicycles. The rate of exchange will be determined by the opportunity cost of producing each good in each country. In this case, the opportunity cost of producing a computer in the United States is 6 bicycles, and the opportunity cost of producing a bicycle in Mexico is 0.1 computer. Therefore, the rate of exchange will be 6 computers for 1 bicycle.

-Refer to the Above Table