Workers needed to make | ||
1 car | 1 ton of grain | |
US | 1/5 | 1/8 |
Japan | 1/4 | 1/9 |
Opportunity Cost of | ||
1 car | 1 ton of grain | |
US | 8/5 | 5/8 |
Japan | 9/4 | 4/9 |
US has an absolute advantage in producing cars and, Japan has an absolute advantage in producing grain.
Also, US has a comparative advantage in producing cars and, Japan has a comparative advantage in producing grain.
No trade:
Cars produced and consumed | Tons of grain produced and consumed | |
US | 250 | 400 |
Japan | 200 | 450 |
(figures in mn)
The statement is true (the relative price for 1 car = 2 tons of grain which lies between the opportunity costs of both the countries)
An American worker can produce either 5 cars or 8 tons of grain a year. A...
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