Suppose that a worker in Radioland can produce either 4 radios or 1 television per year,and a worker in Teeveeland can produce either 2 radios or 4 televisions per year.Each nation has 100 workers.Also suppose that each country completely specializes in producing the good for which it has a comparative advantage.If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year,then each country's maximum consumption of new radios and televisions per year will be
A)100 radios, 300 televisions in Radioland and 300 radios, 100 televisions in Teeveeland.
B)300 radios, 100 televisions in Radioland and 100 radios, 300 televisions in Teeveeland.
C)200 radios, 100 televisions in Radioland and 100 radios, 200 televisions in Teeveeland.
D)300 radios, 100 televisions in Radioland and 100 radios, 400 televisions in Teeveeland.

Question

Quizplus · Accepted Answer

Since Radioland can produce 4 radios or 1 television, its opportunity cost of producing 1 television is 4 radios. On the other hand, Teeveeland can produce 2 radios or 4 televisions, so its opportunity cost of producing 1 television is only 0.5 radios. Therefore, Teeveeland has a comparative advantage in producing televisions, while Radioland has a comparative advantage in producing radios.

By specializing in their respective areas of comparative advantage and trading based on the terms given, Radioland will produce 25 televisions (100 radios / 4) in exchange for 100 televisions from Teeveeland, resulting in a total supply of 125 televisions. Teeveeland, in turn, will receive 25 radios (100 televisions / 4) in exchange for the 100 televisions it provides to Radioland, resulting in a total supply of 125 radios.

Therefore, the maximum consumption of radios and televisions per year will be 300 radios and 100 televisions for Radioland, and 100 radios and 300 televisions for Teeveeland. Thus, the correct answer is option B.

Suppose That a Worker in Radioland Can Produce Either 4