In Japan, one worker can make 5 tons of rubber or 80 radios....

In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios. a. Who has the absolute advantage in the production of rubber or radios? How can you tell? b. Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of radios? c. Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber? d. In this example, does each country have an absolute advantage and a comparative advantage in the same good? e. In what product should Japan specialize? In what product should Malaysia specialize?

In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios.
a. Who has the absolute advantage in the production of rubber or radios? How can you tell?
b. Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your
calculation may involve fractions, which is fine.) Which country has a comparative advantage in
the production of radios?
c. Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in
Malaysia. Which country has a comparative advantage in producing rubber?
d. In this example, does each country have an absolute advantage and a comparative advantage
in the same good?
e. In what product should Japan specialize? In what product should Malaysia specialize?

Key Concepts

Specialization

Specialization involves focusing on the production of goods or services that one can produce most efficiently, according to its comparative advantage. By specializing and then engaging in trade, all parties involved can potentially achieve a higher total output and enjoy gains from exchange, as it allows for the optimal allocation of resources.

Opportunity Cost

Opportunity cost is the cost of foregone alternatives when a decision is made to produce or consume one good over another. It quantifies what is sacrificed in terms of other opportunities when resources are allocated to a particular production activity, which is essential for understanding comparative advantage.

Comparative Advantage

Comparative advantage is the principle that even if one producer holds an absolute advantage in all goods, it can still benefit from trade by specializing in the production of the good for which it has the lowest opportunity cost relative to its competitors. This concept focuses on the benefits of specialization and trade by considering the relative efficiency in producing different goods.

Absolute Advantage

Absolute advantage refers to the ability of a country, firm, or worker to produce more of a good or service using the same amount of resources or less than another producer. It is a measure of productivity and efficiency, comparing the overall output levels between producers without considering the opportunity costs of production.

Transcript

00:01 So in this problem, this is the trade matrix.

00:04 For japan, they can either produce with one worker five tons of rubber or 80 radios.

00:08 In malaysia, they can either produce with one worker 10 tons of rubber or 80 radios.

00:14 First thing we have to do is find out who has the absolute advantage in the production of rubber and radios.

00:18 Absolute advantage is just who can produce more of one good with the same amount of inputs.

00:22 We have one worker the same amount of inputs.

00:24 For radios, if we compare the two, 80 is greater than 40.

00:28 So japan has the absolute advantage when it comes to radios.

00:31 If we compare rubber, 10 is greater than 5.

00:33 So malaysia has the absolute advantage when it comes to rubber.

00:37 So let's just make a note of that.

00:41 So radio, japan has the absolute advantage, and rubber, malaysia has the absolute advantage.

00:49 Now, in part b, we have to find out the opportunity cost of producing 80 additional radios in japan and malaysia.

00:56 So we already know what the opportunity cost of just 80 radios and radioes.

01:00 General is in japan.

01:02 So the opportunity cost in japan would just be five tons of rubber.

01:14 Sorry for the terrible handwriting, five tons of rubber.

01:17 And in malaysia, the opportunity cost producing 80 additional radios would be 40 times two because that would give us 80 and 10 times two...

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