Comparative Advantage • The opportunity cost of a computer...

Comparative Advantage • The opportunity cost of a computer is - 10 tons of wheat in the U.S.: • Producing one computer requires 100 labor hours, which instead could produce 10 tons of wheat - 5 tons of wheat in Japan: • Producing one computer requires 125 labor hours, which instead could produce 5 tons of wheat Japan has comparative advantage in computers

Transcript

00:01 Okay, so in this question, we have to compare american worker with japanese worker.

00:09 So they can either produce cars or grains.

00:15 Greens.

00:17 Say greens.

00:20 So within a year, both of these workers can produce four cars.

00:28 But american workers can produce 10 grains while japanese worker produce only 5.

00:36 So question b is asking us to draw the production frontier.

00:44 Say this is car on the accesses and green on the y -axis.

00:50 So i will indicate american with red color.

00:55 So if they produce 4 units of car, they are giving up 10 units of green.

01:04 So this is for american.

01:07 And for japanese, i use blue color.

01:09 If they produce 4 units of car, they are giving up 5 units of grains.

01:18 So what is the opportunity cost for them? well, for the americans to produce one unit of car, their opportunity cost is just what they give up.

01:30 They give up on 2 .5 units of grain.

01:33 That is 10 divided by 4.

01:35 Also here for the japanese, 1 unit of car equals to, 1 .25 units of grain that they are giving up.

01:48 So we can see that the opportunity cost for producing car, the japanese people, the opportunity cost is lower.

01:59 And the other way around, if we want to say, oh, what is the opportunity cost for producing one unit of grain? so for americans, it's 0 .4 unit of car.

02:14 And for japanese it is 4 divided by 5 which is 0 .8.

02:24 So in conclusion we should let american people produce grains and japanese people produce cars.

02:42 Why is that because when you just simply look at the opportunity cost for producing a car what american are giving up are 2 .5 units of grain.

02:56 So they are giving up a lot to produce a car.

03:01 So it is not very good for them to produce a car because they're giving up too much.

03:05 But comparing to japanese people, they're giving up only a little.

03:08 So they should produce the car while american people should produce grains.

03:14 Okay.

03:15 So we have already answered a, b, c.

03:18 So which country has an absolute advantage in producing cars? so we can see that absolute value...

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