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.

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.

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.

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.

Transcript

00:01 So here we see the levels of or the amount that each country produce of each item given one worker.

00:08 So in order to find the first question, the answer to the first question, which is what is the absolute advantage? or, sorry, who has the absolute advantage in the production of rubber or radios? we would just have to see who can produce the most with each item, with respect to each item.

00:23 So when we're looking at rubber, we're looking at rubber, 10 is greater than 5.

00:30 So malaysia has the absolute advantage.

00:33 And when we're looking at radios, japan has the absolute advantage because 80 is greater than 40.

00:40 So for part a, japan has radios, japan and radios, and the other one is malaysia and rubber.

01:05 In part b, we want to find the opportunity cost of producing 80 additional radios in japan and in malaysia.

01:16 So if we want to produce 80 radios in japan, we would have to give up five tons of rubber.

01:24 And we know this because it's the given option, right? so in japan, the opportunity cost is equal to the opportunity cost in japan is five tons.

01:39 In malaysia, the opportunity cost in malaysia, it is simply equal to whatever this is times two.

01:47 So we'd have to give up 20 tons of rubber for 80 radios because 40 times 2 equals 80.

01:54 So the answer to part b is the opportunity cost for japan is what, five tons.

02:06 And the opportunity cost for malaysia is 20 tons.

02:15 And now we have to figure out who has the comparative advantage.

02:18 Because the opportunity cost in japan is less than the opportunity cost in malaysia, japan has the comparative advantage.

02:27 Now in part c, we want to figure out what the opportunity cost of producing 10 additional tons of rubber in japan and malaysia are...

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