Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a worker in Teeveeland can produce either 2 radios or 4 televisions per year. Each nation has 100 workers. Also suppose that each country completely specializes in producing the good in which it has a comparative advantage. If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year, then each country's maximum consumption of new radios and televisions per year will be

300 radios, 100 televisions in Radioland and 100 radios, 300 televisions in Teeveeland

Explanation:

This question has been answered by in two parts

1. Radioland

Each worker can produce either 4 radios or 1 television

The country has a total of 100 workers

Radioland specializes in radio production because it has comparative advantage in this good, therefore Radioland will only produce radios.

Therefore, the total number of radios it will produce per year

= 4 radios per worker * 100 workers

= 400 radios.

If Radioland trades 100 radios to Teeveeland in exchange for 100 televisions each year, Radioland will end up with

= 400 radios - 100 radios (to Teeveeland) + 100 televisions (from Teeveeland)

= 300 radios + 100 televisions in Radioland.

2. Teeveeland

Each worker can produce either 2 radios or 4 televisions

The country has a total of 100 workers

Teeveeland specializes in television production because it has comparative advantage in this good, therefore teeveeland will only produce television.

Therefore, the total number of televisions it will produce per year

= 4 televisions per worker * 100 workers

= 400 televisions.

If Teeveeland trades 100 televisions to Radioland in exchange for 100 radios each year, Teeveeland will end up with

= 400 televisions - 100 televisions (to Radioland) + 100 radios (from Radioland)

= 300 televisions + 100 radios in Teeveeland.

a. money supply  

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