Question

8. Problems and Applications Q2 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 e ach country has 100 million workers. Complete the following table with the number of workers needed to make one car or 1 ton of grain in the United States and Japan. Workers Needed to Make 1 Car 1 Ton of Grain United States 4 10Y Use the blue line (circle symbol) to graph the production possibilities frontier for the American economy. Then use the green line (triangle symbol) to graph the production possibilities frontier for the Japanese economy U.S Japan 150

Answer 1

	cars	1 ton of grain
United States	.25	.10
Japan	.25	.20

United States =1 worker can produce 4 cars

so 1 car can be produced by .25 workers

similarly, 1 worker can produce 10 tons of grain

so 1ton of grain can be produced by .10 workers

In Japan,

1 worker can produce 4 cars

so 1 car can be produced by .25 workers

similarly, 1 worker can produce 5 tons of grain

so 1ton of grain can be produced by .20 workers

production possibility curve has been correctly drawn in the questions

I.e in United States , 1 worker = 4 cars

100 million workers = 400 million cars

or

1 worker = 10 tons of grain

100 million workers = 1000 million tons of grain

in Japan , 1 worker = 4 cars

100 million workers = 400 million cars

or

1 worker = 5 tons of grain

100 million workers = 500 million tons of grain

opportunity cost table

	1 car	1 ton grain
United States	2.5= .25/.10	0.4= .10/.25
Japan	1.25 = .25/.20	0.8= .20/.25

Given this information , Japan/United States has an absolute advantage in producing cars while United States has an absolute advantage to produce 1 tons of grain ( as workers required to produce 1 ton grain is less in United States .)

Also , Japan has an comparative advantage in producing cars(as opportunity cost is lower in Japan) while United States has an comparative advantage to produce 1 tons of grain( as opportunity cost is lower in United States)

if workers divided half in each good production then

	cars (million )	grain (million )
United States	200 = 50*4	500 = 50 *10
Japan	200= 50*4	250 = 50*5

true , both nations would be better off if they produced the good in which they specialise and then trade 200million tons of grain with 100 million cars .