Question

1. Assume the following table represents the amount of cars and computers that can be produced in japan and china with one week's worth of labor. Assume that no other resources are needed to produce these goods.

Japan        China

Car    250             300

Computer      750             600

1. Does either country have an absolute advantage? Explain

2. Does either country have a comparative advantage? Explain

3. Show a trade that benefits both countries, if one exists. Explain

Please help me a, b and c

Answer 1

	Japan	China
Car	250	300
Computer	750	600

a) As seen from the table above in the production of Cars, China has an absolute advantage over Japan since China can produce 300 cars in one week,s worth of labour, but Japan can only produce 250

Whereas in the production of Computers, Japan has an absolute advantage over China because Japan can produce 750 computers in one week's worth of labour, but China can only produce 600..

b)Comparitive advantage

Cars

For Japan

We have opportunity cost of producing 250 cars is700 computers

Hence to produce 1 car, the opportunity cost is 700/250 = 2.8 computers

For China

We have opportunity cost of producing 300 cars is 600  computers

Hence to produce 1 car, the opportunity cost is 600/ 300 = 2 computers.

We see that in Japan the Opportunity cost of producing 1 car is 2.8 computers, whereas in China, the opportunity cost of producing 1 car is 2 computers.

SInce the Opportunity cost of producing car is cheaper in China, China has a comparitive advantage in producing cars.

For Computers

For Japan

We have opportunity cost of producing 700 computers is 250 cars.

Hence to produce 1 computer, the opportunity cost is 250 / 700 = 0.357 cars

For China

We have opportunity cost of producing 600 computers is 200 cars.

Hence to produce 1 computer, the opportunity cost is 200 / 600 = 0.5 cars

We see that in Japan the Opportunity cost of producing 1 computer is 0.357 cars

whereas in China, the opportunity cost of producing 1 computerr is 0.5 cars.

SInce the Opportunity cost of producing computer is cheaper in Japan, Japan has a comparitive advantage in producing computers.

3.Yes , trade benefits them

We know that China has comparitive advantage in producing cars.

Hence If it trades with Japan , for the opportunity cost greater than 2 computers ( Since OC of producing 1 car is 2 computer) .It will be willing to trade.

So China will be will be willing to sell cars at Price > 2 computers.

And Japan will be willing to buy cars at Price < 2.8 computers

The Ideal price will be between 2 and 2.8 computers.

We know that Japan has comparitive advantage in producing computers. Hence If it trades with china , for the opportunity cost greater than 0.357 cars ( Since OC of producing 1 computer is 0.357 car) .It will be willing to trade.

So Japan will be willing to sell computer at Price > 0.357 car..

And China will be willing to buy computers at Price < 0.5 car.

The ideal price will be between 0.357 and 0.5 cars.

Hence Trade benefits both the countries since Both the countries will be buying other goods for less than the opportunity costs of the 2nd good than if they were producing on their own,

For example China can buy Computers for price less than 0.5 car in a trade, whereas it would have to buy Computer at 0.5 car if it didnt trade and produced on their own.