Please help with this economics question.
a. Which country has an absolute advantage in producing steel? Which country has an absolute advantage in producing Flash Drives? Briefly explain your answers.
b. Which country has a comparative advantage in producing Flash Drives? Why?
c. According to comparative advantage theory, at what price should the country specializing in Flash Drives sell them and why?
d. What is the opportunity cost of one ton of steel in South Korea?
Homework Answers
A.
South korea has absolute advantage in production if steel. As it can produce 80 tones of steel for 40 flash drives or put another way 40 tones of steel for 20 flash drives. When compared to japan it produces twice the steel for equal number of flash drives.
B.
Japan has comparative advantage in producing flash drives. As japan will be better off producing 20 flash drives than 20 tones of steel as it can buy cheaper steel from south korea in exchange of flash drives.
C.
Japan should sell 1 flash drives to south korea for 2 tones of steel as south korea will be indifferent between buying it from japan jr producing it for themselves.
D.
Opportunity cost of 1 ton of steel for south korea is 0.5 flash drives as it could have made that 0.5 flash drive by deploying the same number of resources.
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Please help with this economics question.
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