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.

BuyFind

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
BuyFind

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

Solutions

Chapter 3, Problem 2PA
Textbook Problem

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.

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