Suppose that there are 10 million workers in Japan and that each of these workers can produce either 2 cars or 20 bushels of wheat in a year. The opportunity cost of producing a car in Japan is 10 bushels of wheat, and the opportunity cost of producing a bushel of wheat in Japan is 1/10 cars. Use the blue line (circle symbol) to draw Japan's production possibilities frontier (PPF) on the following graph. Then use the black point (plus symbol) to indicate the consumption bundle Japan can achieve without trade if it chooses to consume 15 million cars. Now suppose that the United States offers to buy 5 million cars from Japan in exchange for 150 million bushels of wheat. On the previous graph, use the grey point (star symbol) to indicate the consumption bundle Japan can achieve with trade if it continues to consume 15 million cars. Japan should accept the deal the United States proposes.
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- Each worker can produce either 2 cars or 20 bushels of wheat per year. - With 10 million workers, Japan can produce a maximum of 20 million cars (10 million workers * 2 cars) or 200 million bushels of wheat (10 million workers * 20 bushels). Show more…
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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.
Suppose that there are 10 million workers in Canada, and that each of these workers can produce either 2 cars or 30 tonnes of wheat in a year. a. What is the opportunity cost of producing a car in Canada? What is the opportunity cost of producing a tonne of wheat in Canada? Explain the relationship between the opportunity costs of the two goods. b. Draw Canada's production possibilities frontier. If Canada chooses to consume 10 million cars, how much wheat can it consume without trade? Label this point on the production possibilities frontier. c. Now suppose that the United States offers to buy 10 million cars from Canada in exchange for 20 tonnes of wheat per car. If Canada continues to consume 10 million cars, how much wheat does this deal allow Canada to consume? Label this point on your diagram. Should Canada accept the deal?
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