Question

Suppose that we have two countries the United States and Japan with their respective production possibility curves with two goods: computers and medical devices. The United States' computer intercept is 2,000,000 computers and its medical device intercept is 400,000 medical devices. The Japanese computer intercept is 1,000,000 computers and its medical device intercept is 500,000 medical devices. If the two countries decide to engage in trade which country should produce medical devices. If the two countries decide to engage in trade which country should produce computers?
a. The United States
b. Japan
c. Both countries should produce medical devices

Answer 1

Answer:

a. The United States

should produce computers since its opportunity cost is higher.

Explanation:

The United States' computer intercept is 2,000,000 computers and its medical device intercept is 400,000 medical devices.

• opportunity cost of producing 1 computer = 2,000,000 / 400,000 = 5 medical devices
• opportunity cost of producing 1 medical device = 400,000 / 2,000,000 = 0.2 computers

The Japanese computer intercept is 1,000,000 computers and its medical device intercept is 500,000 medical devices.

• opportunity cost of producing 1 computer = 1,000,000 / 500,000 = 2 medical devices
• opportunity cost of producing 1 medical device = 500,000 / 1,000,000 = 0.5 computers