Question

Suppose that Japan can produce 5 cars in 8 hours and 15 HD TVs in 10 hours. The US can produce 5 cars in 6 hours and 15 TVs in 5 hours. Explain which country has a comparative advantage in producing cars and which country has a comparative advantage in producing TVs. In your answer, be sure to be very specific as to how you identified the comparative advantage in each country and define how one goes about identifying comparative advantage.

Answer 1

Answer:

If there is 1 hour of production:  

Cars produced by Japan = 5/8 = .625 cars  

HD TV produced by Japan = 15/10 = 1.5 HD TVs

Further,

Cars produced by US = 5/6 = .83 cars

HD TV produced by US = 15/5 = 3 HD TVs

So,

Opportunity cost of a car for Japan = 1.5/.625 = 2.4 units of HD TVs

Opportunity cost of car for US = 3/.83 = 3.61 units of HD TV

Since, Japan has lower opportunity cost of producing cars, so Japan has comparative advantage in producing cars.

Opportunity cost of a HD TV for Japan = .625/1.5 = .42 units of car

Opportunity cost of a HD TV for US = .83/3 = .28 units of car

Since US has lower opportunity cost of producing HD TVs, so US has comparative advantage in producing HD TVs.