Reference no: EM132323689

Consider US and China who can both produce soya beans and mobile phones. In a year, the US can produce 80 billion tonnes of soya beans or it can produce 400 million mobile phones. In a year, China can produce 50 billion tonnes of soya beans or it can produce 400 million mobile phones.

a. Explain which country has the absolute advantage in soya beans production and which country has the absolute advantage in mobile phone production?

b. What is the US' opportunity cost of producing 1 billion tonnes of soya beans? What is China's opportunity cost of producing 1 billion tonnes of soya beans? Explain which country has the comparative advantage in soya beans production?

c. Explain which country should specialise in soya beans production and which country should specialise in mobile phone production?

d. What is the maximum (in terms of tonnes of soya beans) that the US would be willing to pay for China's mobile phones? What is the minimum (in terms of tonnes of soya beans) China would accept for its mobile phones? Will they trade and if so, which country benefits from the trade?