Question 5 Suppose there are two countries Peru and Japan that produce Food and Fuel. Peru can produce 7,523 units of Food or 17,853 units of Fuel using a labour force of 8000. Japan can produce 5,733 units of Food or 24,156 units of Fuel using a labour force of 5000.a) On two separate graphs sketch the initial PPF for the two countries with Food on the x-axis.b) If Japan and Peru employ half its workers to produce Food and half to produce Fuel how much of each good can they consume? Label this point A and A* respectively.c) Which country has the absolute advantage in food? In fuel? Explain.d) Which country has the comparative advantage in food? In fuel? Explain.e) Which good(s) should each country specialize in?f) Discuss the benefits of specialization for each country.

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Answered: Question 5 Suppose there are two…

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter28: International Trade And Finance

Section: Chapter Questions

Problem 1SQP

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Question 5 Suppose there are two countries Peru and Japan that produce Food and Fuel. Peru can produce 7,523 units of Food or 17,853 units of Fuel using a labour force of 8000. Japan can produce 5,733 units of Food or 24,156 units of Fuel using a labour force of 5000.

a) On two separate graphs sketch the initial PPF for the two countries with Food on the x-axis.
b) If Japan and Peru employ half its workers to produce Food and half to produce Fuel how much of each good can they consume? Label this point A and A* respectively.
c) Which country has the absolute advantage in food? In fuel? Explain.
d) Which country has the comparative advantage in food? In fuel? Explain.
e) Which good(s) should each country specialize in?
f) Discuss the benefits of specialization for each country.

Definition Video Definition Ability of a country to produce more output with a given level of input or to produce the same level of output with a lower level of input as compared to the other countries. For example, if Country A produces 200 units with the help of 10 units of labor, and Country B produces 300 units with 10 units of labor, Country A has an absolute advantage in the production of the good. Video

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