Question

Suppose the U.S. and Japan both produce airplanes and televisions and the U.S. has a comparative advantage in the production of airplanes while Japan has a comparative advantage in the production of televisions. If the U.S. exports airplanes to Japan and imports televisions from Japan,
a. all individuals in both countries will be better off.
b. all individuals in both countries will be worse off.
c. both countries, as a whole, will be worse off.
d. both countries, as whole, will be better off.

Answer 1

Answer:

d. both countries, as whole, will be better off.

Explanation:

When countries leverage on their comparative advantages, they will be better off. In this instance as US has comparative advantage in producing airplanes, it will be more cost effective for them to produce and export to Japan.

So also Japan will find it cheaper to produce televisions and export to the US. Both contries reduce cost by producing goods they have comparative advantage in.