American and Japanese workers can each produce 4 cars a...

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.

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.

Key Concepts

Gains from Trade

Gains from trade arise when economies specialize in producing goods for which they have a comparative advantage, leading to an overall increase in production and consumption possibilities for all parties involved. This concept illustrates how engaging in trade can allow countries to consume beyond their initial production possibilities, thus improving economic welfare.

Comparative Advantage

Comparative advantage is the economic principle that determines how, even if one entity holds an absolute advantage in producing all goods, it can still benefit from trade by specializing in the production of goods with the lowest opportunity cost. This principle guides the allocation of resources to where they are most efficient and facilitates mutually beneficial trade.

Absolute Advantage

Absolute advantage refers to the ability of an entity, such as a country or worker, to produce more of a good or service using the same amount of resources as another entity. It focuses on overall productivity and efficiency in production, and it is important for understanding how differences in production capabilities influence trade.

Opportunity Cost

Opportunity cost is the concept of the next best alternative foregone when a choice is made regarding resource allocation. In the context of production, it represents the amount of one good that must be sacrificed to produce an additional unit of another good, thereby highlighting the trade-offs inherent in decision-making.

Production Possibility Frontier (PPF)

The Production Possibility Frontier represents the maximum attainable combinations of two goods that an economy can produce given its resources and technology. It emphasizes the trade-offs and opportunity cost of reallocating resources from one good to another, and it visually illustrates the concept of scarcity and efficiency in production.

Transcript

00:01 All right, here we're taking a look at the interdependence between countries and how trade is impacted by that and how countries can benefit from trading with others.

00:10 So here we have an example where we're looking at american and japanese workers.

00:15 Each country has 100 million workers and we're told that both american and japanese workers can each produce four cars per year.

00:23 American workers can produce 10 tons of grain per year and japanese workers can produce 5 tons of grain per year.

00:29 This is for each worker.

00:31 So let's start with part a here where we want to create a production opportunities table.

00:36 So i've split it up for america and japan.

00:38 And we have two parts for each of them.

00:40 We first wanted to determine the days to produce one car and the days to produce one time of a grant.

00:45 Now this is per worker.

00:46 So let's start by doing that.

00:47 So what we're given here, let's see.

00:50 I'm going to do my work right up here for you.

00:52 So what we have is that american workers can produce four cars per year.

00:58 So we know that there are 365 days per year.

01:01 Let's divide that by those four cars that we know each worker can produce per year.

01:05 And that'll give us 92 .5 days for american workers to produce one car, right? so here we have 92 .5 days to produce one car.

01:17 Now, how about grain for americans? we're told that each american can produce 10 tons of grain per year.

01:23 So let's go ahead and again, take our 365 days per year.

01:28 Divide that by the 10 tons we know that they can produce each year and we get 36 .5 days to produce one ton.

01:39 Let's go ahead and do the same thing for japan now.

01:42 We know that japan can produce also four cars per year.

01:47 So it's going to be the same japan.

01:49 It takes them 92 .5 days.

01:51 This is each worker.

01:52 It takes them that many days to produce one car.

01:54 Now grain, they can produce five tons of grain per year compared to the 10.

01:59 So we know that it takes them twice as much time as the american workers.

02:04 So i'm actually just going to double the 36 .5 days that it takes american workers.

02:11 That means it's taking them 73 days to produce one ton of grain per worker.

02:17 Let's go ahead now and determine the amount produced each year.

02:21 And this is going to be for america and japan as a whole.

02:25 So how many cars can america produce each year? well, we're told that they can produce each worker can produce four cars per year, right? four cars per year per worker and we have 100 million workers.

02:38 So let's multiply that out.

02:40 That gives us a total of 400 million cars per year.

02:47 And now how about grain? we know that americans can produce 10 tons of grain per year.

02:52 We have 100 million workers.

02:54 So 10 tons of grain times that 100 million workers gives us 1 ,000 million tons.

03:08 All right, let's go ahead now and do the same thing for japan.

03:11 We see that japan can produce the same number of cars per year.

03:15 So again, they can also produce 400 million cars per year.

03:19 As for grain, again, they're only producing half of what americans are.

03:23 So we know that they are producing 500 million tons of grain per year.

03:29 All right, let's go ahead and graph these production possibility frontiers now.

03:33 Scrolling down a little bit, you can see our production possibility blank graphs that i've drawn for us.

03:38 Now, let's see what america can produce...

Please give Ace some feedback