D Question 6 Table 337 Assume that Aruba and Iceland can swi

D Question 6 Table 3-37 Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate Labor Needed to Make 1 Hours Cooler Aruba 2 and1 Refer to Table 3-37. Iceland should export O coolers and import radios. O both goods and import neither good radios and import coolers. neither good and import both goods. Question 7 10 pts

Solution

Option (1).

We find Opportunity costs (OC) as follows.

In Aruba,

OC of Cooler = 2/5 = 0.4 Radio

OC of Radio = 5/2 = 2.5 Cooler

In Iceland,

OC of Cooler = 1/4 = 0.25 Radio

OC of Radio = 4/1 = 4 Cooler

Since Iceland can make Cooler at a lower OC than Aruba can (0.25 < 0.4), Iceland has comparative advantage in Cooler and should export Coolers, and import Radios.