Question

1. The following table looks at the maximum amount of Televisions and Machines that China and Japan can produce. Assume that the trade-off between Televisions and Machine production in China and Japan is always the same.

	Maximum Machine Production	Maximum Television Production
China	10 million machines	60 million televisions
Japan	5 million machines	15 million televisions

1. Draw a production possibilities curve for China and Japan. (Assume that China and Japan produce nothing else except machines and televisions.
2. What is the opportunity cost of producing one more machine in China? In Japan?
3. Identify which country has the comparative advantage in machine production and which country has the comparative advantage in television production.
4. Show how China would benefit from trading with Japan.
5. Show how Japan would benefit from trading with China.

Answer 1

a) The production possibility curve is

b) The open door cost of delivering one machine in Japan =15/3= 5 TVs.

The open door cost of delivering machine in China = 60/10 = 6 TVs.

c) As the open door cost of delivering machines is less for Japan, Japan has a relative bit of leeway in the creation of machines and China will have a similar bit of leeway in the creation of TVs.

d) As Japan could make machines all the more productively, it will be capable make more machines in the event that it has practical experience in the creation of machines. China then again, can work in the creation of TVs and can exchange with Japan by sending out TVs and bringing in machines. Thusly. China will have the option to expend a larger number of merchandise than it used to devour without exchanging.

e) As China could make TVs all the more effectively, it will be capable make more TVs on the off chance that it represents considerable authority in the creation of TVs. Japan then again, can work in the creation of machines and can exchange with China by trading machines and bringing in TVs. Thusly, Japan will have the option to expend a greater number of products than it used to devour without exchanging.