Assignment:
Question 1
Consider Two countries: Japan and Korea. If Japan specializes in producing cars, it can produce 16 million cars a year. If Japan specializes in producing cellphones, it can produce 80 million cellphones a year.
If Korea specializes in producing cars, it can produce 8 million cars a year. If Korea specializes in producing cellphones, it can produce 48 million cellphones a year.
(1) Which country has absolute advantage in producing cars?
(2) Which country has absolute advantage in producing cellphones?
(3) Which country has comparative advantage in producing cars?
(4) Which country has comparative advantage in producing cellphones?
(5) If the two countries were open to trade, which country should export cars? Which country should export cellphones? Which country would benefit trade?
Question 2
American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year. To keep things simple, assume that each country has 100 million workers.
(1) For the United States, what is the opportunity cost of a car? What is the opportunity cost of a ton of grain?
(2) For Japan, what is the opportunity cost of a car? What is the opportunity cost of a ton of grain?
(3) Which country has a comparative advantage in producing cars? In producing grain?
(4) Without trade, half of each country workers produce cars and half produce grain. What quantities of cars and grains does each country produce?
(5) Starting from a position without trade, give an example in which trade makes each country better off.