Answer to Question #298375 in Microeconomics for Christian

Question

 American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simple, assume that each country has 100 million workers.

1. For this situation, construct a table analogous to the table in Figure 1.
2. Graph the production possibilities frontiers for the American and Japanese economies.
3. For the United States, what is the opportunity cost of the car? Of grain? For Japan, what is the opportunity cost of a car? Of grain? Put this information in a table analogous to Table 1.
4. Which country has an absolute advantage in producing cars? In producing grain?
5. Which country has a comparative advantage in producing cars? In producing grain?
6. Without trade, half of each country’s workers produce cars and half produce grain. What quantities of cars and grain does each country produce?
7. Starting from a position without trade, give an example in which trade makes each country better off.

Answer 1

A)

B)

C)

i) Japan

- Opportunity cost for the car is 20

-Oppotunity cost for grains is 25

i) United States

- Opportunity cost for car is 10

- Opportunity cost for grains is 25

D)

Japan has absolute advantage in producing cars while United States has absolute advantage in producing grains.

E) Japan has comparative advantage of producing grains while United States has comparative advantage of producing cars.

F) Japan

-10 grains

- 12.5 cars

United states

- 5 grains

-12.5 cars

G) Japan should focus on producing cars while importing grains from United States while the United States should focus on producing grains while importing cars from Japan.