Question

An American worker can produce either 5 cars or 9 tons of grain a year. A Japanese worker can produce either 3 cars or 9 tons of grain a year. To keep things simple, assume that each country has 100 million workers. Complete the following table with the number of workers needed to make one car or 1 ton of grain in the United States and Japan.
1 Car 1 Ton of Grain
United States 1/5 1/9
Japan 1/3 1/9

Use the blue line (circle symbol) to graph the production possibilities frontier for the American economy. Then use the green line (triangle symbol) to graph the production possibilities frontier for the Japanese economy. Complete the following table by determining the opportunity cost of a car and of a ton of grain for both the United States and Japan.


1 Car 1 Ton of Grain
(In terms of tons of grain given up) (In terms of cars given up)
United States 5/9 5/9
Japan 3 1/3

Given this information,the United States has an absolute advantage in producing cars, andneither country has an absolute advantage in producing grain. Also, the United States has a comparative advantage in producing cars, and Japan has a comparative advantage in producing grain. Assume that without trade, half of each country's workers produce cars and half produce grain. Complete the following table with the quantities of cars produced and consumed in each country if there is no trade.

Cars Produced and Consumed Tons of Grain Produced and Consumed
(Millions) (Millions)
United States
Japan

Both countries would be better off if they produced the good in which they have a comparative advantage and then traded 400 million tons of grain for 200 million cars.

a. True
b. False

Answer 1

Answer:

a) Complete the following table with the number of workers needed to make one car or 1 ton of grain in the United States and Japan.

                                    1 Car                           1 Ton of Grain

United States             1/5                                   1/9

Japan                          1/3                                   1/9

b) Complete the following table by determining the opportunity cost of a car and of a ton of grain for both the United States and Japan.

                                     1 Car                           1 Ton of Grain

                      (tons of grain given up)         (cars given up)

United States             9/5                                   5/9

Japan                           3                                      1/3

c) Complete the following table with the quantities of cars produced and consumed in each country if there is no trade.

                                Cars Produced        Tons of Grain Produced

                                and Consumed        and Consumed

United States            250 million               450 million

Japan                        150 million                450 million

d) Both countries would be better off if they produced the good in which they have a comparative advantage and then traded 400 million tons of grain for 200 million cars.

a. True

IF each country specialized in the production of only one good:

• US would produce 500 million cars
• Japan would produce 900 million tons of grain

If they traded, the US would end up with 300 million cars and 400 million tons of grains, while Japan would have 200 million cars and 500 million tons of grains. So they both win.