Brief Principles of Macroeconomics...
Brief Principles of Macroeconomics...
American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simple, assume that each country has 100 million workers.
a. For this situation, construct a table analogous to the table in Figure 1.
b. Graph the production possibilities frontiers for the American and Japanese economies.
c. For the United States, what is the opportunity cost of a car? Of grain? For Japan, what is the opportunity cost of a car? Of grain? Put this information in a table analogous to Table 1.
d. Which country has an absolute advantage in producing cars? In producing grain?
e. Which country has a comparative advantage in producing cars? In producing grain?
f. Without trade, half of each country’s workers produce cars and half produce grain. What quantities of cars and grain does each country produce?
g. Starting from a position without trade, give an example in which trade makes each country better off.
Subpart (a):
Calculate the member of required labor.
Number of workers required to produce one unit of goods can be calculated using the following formula.
Substitute the respective values in Equation (1) to calculate the required number of person to produce one unit of car in U.S.
Required labor to produce one unit of car in U
Subpart (b):
Draw the production possibility frontier.
Subpart (c):
Calculate the opportunity cost.
Subpart (d):
Find the country that has absolute advantage in the production of goods.
Subpart (e):
Find the country that has absolute advantage in the production of goods.
Subpart (f):
Calculate the total production before the trade.
Subpart (g):
Gains from trade for the U.S. and Japan.
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