Suppose that a worker in freedonia can produce either 6 units of corn or 2 units of wheat per year, and a worker in sylvania can produce either 2 units of corn or 6 units of wheat per year. each nation has 10 workers. for many years the two countries traded, each completely specializing according to their respective comparative advantages. now, however, war has broken out between them and all trade has stopped. without trade, freedonia produces and consumes 30 units of corn and 10 units of wheat per year. sylvania produces and consumes 10 units of corn and 30 units of wheat. the war has caused the combined yearly output of the two countries to decline by
a.10 units of corn and 10 units of wheat.
b.20 units of corn and 20 units of wheat.
c.30 units of corn and 30 units of wheat.
d.40 units of corn and 40 units of wheat

The correct answer is option b.

Explanation:

A worker in Freedonia can produce either 6 units of corn or 2 units of wheat per year.

A worker in Sylvania can produce either 2 units of corn or 6 units of wheat per year.

The opportunity cost of a unit of corn for Freedonia

=

= 0.33

The opportunity cost of a unit of corn for Sylvania

=

= 3

So, we see that Freedonia has a comparative advantage in producing corn as it has a lower opportunity cost.

The opportunity cost of a unit of wheat for Freedonia

=

= 3

The opportunity cost of a unit of wheat for Sylvania

=

= 0.33

So, we see that Sylvania has a comparative advantage in producing wheat as it has a lower opportunity cost.

With 10 workers, Freedonia will produce 60 units of corn and 0 units of corn and Sylvania will produce 60 units of wheat and 0 units of corn.

Without trade, Freedonia produces and consumes 30 units of corn and 10 units of wheat per year. Sylvania produces and consumes 10 units of corn and 30 units of wheat.

The war has caused the combined yearly output of the two countries to decline by 20 units of corn and 20 units of wheat.