e. For each country to be better off Japan should produce only__________________________________ and the U.S. should produce only________________ and then they should trade for what they don’t produce. Why?
Added by Austin Z.
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Each country should specialize in producing the goods for which they have a lower opportunity cost compared to the other country. Show more…
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Use comparative advantage, two countries and two goods, to explain why every country can be better off from international trade.
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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. a. For this situation, construct a table analogous to the table in Figure 1. b. Graph the production possibilities frontiers for the American and Japanese economies. c. For the United States, what is the opportunity cost of a 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. d. Which country has an absolute advantage in producing cars? In producing grain? e. Which country has a comparative advantage in producing cars? In producing grain? f. Without trade, half of each country's workers produce cars and half produce grain. What quantities of cars and grain does each country produce? g. Starting from a position without trade, give an example in which trade makes each country better off.
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