Consider the economies of the hypothetical nations Icecountry and Sandland. These nations produce only two goods, scooters and food. Let’s say that, in one day, a worker in each country can produce either the number of scooters or the amount of food indicated in the table below: Icecountry Sandland
Number of scooters 16 20
Quantity of food 40 lb 100 lb
A. What is the opportunity cost of producing a scooter in each country?
B. Which country has a comparative advantage in the production of food? In your answer, identify the opportunity cost paid by each producer.
C. If the countries specialize and trade, into what range could the terms of trade (pounds of food exchanged per scooter) possibly fall? Explain your answer. In your explanation, be sure to indicate which country is producing which good.