To determine which country should specialize in which product, we need to analyze the opportunity cost of producing each product in both countries. Comparative advantage is based on which country has a lower opportunity cost for producing a particular good.
1. Opportunity Cost for the United States:
- For the United States, the opportunity cost of producing 1 unit of corn is calculated by considering what could be produced instead. If the United States produces corn, it gives up producing diamonds.
- Given the production possibilities, the United States can produce 60 units of corn or 10 units of diamonds per week.
- The opportunity cost of producing 1 unit of corn is:
[tex]\[
\frac{10 \text{ units of diamonds}}{60 \text{ units of corn}} = 0.1667 \text{ diamonds}
\][/tex]
- Conversely, the opportunity cost of producing 1 unit of diamond is:
[tex]\[
\frac{60 \text{ units of corn}}{10 \text{ units of diamonds}} = 6 \text{ units of corn}
\][/tex]
2. Opportunity Cost for Congo:
- For Congo, if it produces corn, it gives up producing diamonds.
- Given the production possibilities, Congo can produce 20 units of corn or 5 units of diamonds per week.
- The opportunity cost of producing 1 unit of corn is:
[tex]\[
\frac{5 \text{ units of diamonds}}{20 \text{ units of corn}} = 0.25 \text{ diamonds}
\][/tex]
- Conversely, the opportunity cost of producing 1 unit of diamond is:
[tex]\[
\frac{20 \text{ units of corn}}{5 \text{ units of diamonds}} = 4 \text{ units of corn}
\][/tex]
3. Comparative Advantage:
- The United States has a lower opportunity cost for producing corn (0.1667 diamonds per unit of corn) compared to Congo (0.25 diamonds per unit of corn). Therefore, the United States has a comparative advantage in producing corn.
- Congo has a lower opportunity cost for producing diamonds (4 units of corn per diamond) compared to the United States (6 units of corn per diamond). Therefore, Congo has a comparative advantage in producing diamonds.
4. Specialization:
- Based on comparative advantage, the optimal strategy is for each country to specialize in the product for which it has the lowest opportunity cost. This means the United States should specialize in producing corn, whereas Congo should specialize in producing diamonds.
Therefore, the statements that are true based on the data table are:
- The United States should specialize in corn and trade for diamonds.
- Congo should specialize in diamonds and trade for corn.
