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## Imagine that you just paid \$50 for a new pair of jeans

The decision of household spending on jeans is made concerning the price of the product and the income of the consumer. This decision is made by the individual himself who is buying the jeans as he is the one who decides how to spend his own earned income.

A) Assuming that there is 1 worker in both countries, if each country attempts to produce both jeans and cell phones, U.S. will produce 500 jeans and 25 cell phones and China will produce 500 jeans and 50 cell phones.

Total number of jeans = 1000

Total Number of cell phones = 75

B) Opportunity cost of producing jeans for U.S. = 50/1000 = 1/20

Opportunity cost of producing jeans for China = 100/1000 = 1/10

C) Opportunity cost of producing cell phones for U.S. = 1000/50 = 20

Opportunity cost of producing cell phones for China = 1000/100 = 10

D) Each nation should produce the 500 jeans as both can produce equal amount of jeans and are equally good at it.

E) Comparative advantage occurs when a country can produce a god at lower opportunity cost than other country. This leads to specialization and trade.

F) If each country specializes, U.S. will produce only jeans and China would produce only cell phones. The total production of jeans would be 1000 and of cell phones would be 100.

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Question

1.  Imagine that you just paid \$50 for a new pair of jeans. According to the circular flow diagram, what decisions were made concerning the jeans you purchased, and who made decisions about the jeans you bought?

Imagine that you just paid \$50 for a new pair of jeans

Your response must be at least 75 words in length.

2. Background information: A worker in the United States and a worker in China can each produce 1,000 pairs of jeans per week. A worker in the United States can produce 50 cell phones in a week, and a worker in China can produce 100 cell phones in a week. Answer the following questions based on this information.

Part A: If each country attempted to produce both jeans and cell phones, how many jeans and cell phones could each country produce? What would be the total number of jeans and cell phones produced by the two countries combined? (Show your work.)

Part B: Calculate the opportunity cost of producing jeans for each country. (Show your work.)

Part C: Calculate the opportunity cost of producing cell phones for each country. (Show your work.)

Part D: Determine how many jeans should be produced by each nation. (Show your work).

Part E: If each nation should specialize in producing jeans and cell phones, explain why; use economic terminology you have learned in this unit in your explanation.

Part F: Finally, how many total jeans and cell phones will be produced by the two nations combined after specialization?

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