Suppose that in Mexico, it takes four labor hours to produce one shirt and 12 labor hours to produce one computer. Suppose that in the United States, it takes four labor hours to produce one shirt and three labor hours to produce one computer. If both countries have 60 labor hours available, completely specialize according to comparative advantage, and trade 7.5 shirts for 7.5 computers, which of the following gives total consumption in the United States after trade?

a. 15 shirts and 20 computers

b. 7.5 shirts and 10 computers

c. 7.5 shirts and 12.5 computers

d. 7.5 shirts and 7.5 computers

United States have comparative advantage in producing computers while Mexico has comparative advantage in producing shirts. United States have 60 labor hours available which it will use to make computers. It can make total 20 [60 hours / 3 hour per computer] computers. It will trade 7.5 computer for 7.5 shirts then the country will be left with 12.5 computers and 7.5 shirts.

andromache andromache · Answer 2 · 2021-09-15T08:26:58+02:00

The total consumption in the United States after the trade is 7.5 shirts and 12.5 computers.

The following things should be considered:

The opportunity cost of Producing shirts in Mexico is = 4 ÷ 12 = 0.33.
The opportunity cost of Producing shirts in the US = 4 ÷ 3 = 1.33

Therefore Mexico should have the comparative advantage in shirts as it contains the lower opportunity cost of producing shirts and the US has the comparative advantage in computers.

Therefore,

US Production of computers = 60 ÷ 3=20 .
So, The terms of trade or exchange rate should be 7.5 shirts to 7.5 computers.
Thus, the US would trade 7.5 computers and received 7.5 shirts.
After the trade, the US will have shirts = 7.5 .
So, the Computers = 20 - 7.5 = 12.5

Therefore we can conclude that the total consumption in the United States after the trade is 7.5 shirts and 12.5 computers.

Learn more about the trade here: brainly.com/question/8322028