To determine which country should specialize in which good and trade, we need to consider the concept of opportunity cost. Opportunity cost in this context means the amount of one good that must be given up to produce an additional unit of another good.
1. Calculating the Opportunity Cost:
- United States:
- The United States can produce either 60 thousand units of corn or 10 thousand units of diamonds in one week.
- Opportunity cost of producing 1 thousand units of corn:
[tex]\[
\text{Opportunity Cost of Corn} = \frac{\text{Diamonds Foregone}}{\text{Corn Produced}} = \frac{10}{60} = 0.1667 \text{ diamonds per thousand units of corn}
\][/tex]
- Opportunity cost of producing 1 thousand units of diamonds:
[tex]\[
\text{Opportunity Cost of Diamonds} = \frac{\text{Corn Foregone}}{\text{Diamonds Produced}} = \frac{60}{10} = 6 \text{ thousand units of corn per diamond}
\][/tex]
- Congo:
- Congo can produce either 20 thousand units of corn or 5 thousand units of diamonds in one week.
- Opportunity cost of producing 1 thousand units of corn:
[tex]\[
\text{Opportunity Cost of Corn} = \frac{\text{Diamonds Foregone}}{\text{Corn Produced}} = \frac{5}{20} = 0.25 \text{ diamonds per thousand units of corn}
\][/tex]
- Opportunity cost of producing 1 thousand units of diamonds:
[tex]\[
\text{Opportunity Cost of Diamonds} = \frac{\text{Corn Foregone}}{\text{Diamonds Produced}} = \frac{20}{5} = 4 \text{ thousand units of corn per diamond}
\][/tex]
2. Determining Specialization:
- The United States should specialize in producing the good with the lower opportunity cost.
- Opportunity cost of corn: 0.1667 diamonds per thousand units of corn
- Opportunity cost of diamonds: 6 thousand units of corn per diamond
- Since 0.1667 < 6, the United States should specialize in corn.
- Congo should specialize in producing the good with the lower opportunity cost.
- Opportunity cost of corn: 0.25 diamonds per thousand units of corn
- Opportunity cost of diamonds: 4 thousand units of corn per diamond
- Since 0.25 < 4, Congo should specialize in corn as well.
3. Conclusion:
Based on the opportunity costs and the principle of comparative advantage, the correct statement is:
- The United States should specialize in corn and trade for diamonds.
