Answer on Microeconomics Question for Nicole
1. Assume that by devoting all of its resources to producing food, Thailand can produce 40 units of food. By devoting all of its resources to producing cloth, Thailand can produce 60 units of cloth. The corresponding production for Indonesia would be 30 food or 20 cloth. Then:
a. The terms of trade will be 3 food for 1 cloth
b. Thailand should specialize in food and Indonesia in cloth
c. Thailand should specialize in cloth and Indonesia in food
d. Neither country would benefit from specialization and trade
So, the right answer is c. Thailand should specialize in cloth and Indonesia in food.
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