Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax

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Textbook Question
Chapter 33, Problem 30P

In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios.

1. Who has the absolute advantage in the production of rubber or radios? How can you tell?
2. Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine,) Which country has a comparative advantage in the production of radios?
3. Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber?
4. In this example, does each country have an absolute advantage and a comparative advantage in the same good?
5. In what product should Japan specialize? In what product should Malaysia specialize?

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Suppose that an hour of work in Germany can produce 5 pastries or 4 sausages. In Denmark, an hour of work produces 4 pastries or 3 sausages.  Which country has the absolute advantage in pastries? In sausages?  Calculate the opportunity cost of each good in each country. Which country has the comparative advantage in each good? Why?  What would be a mutually beneficial terms of trade?
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