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Homework answers / question archive / Assume that if Japan devotes all its relevant resources to the production of soybeans, it could produce 10 million units of soybeans
Assume that if Japan devotes all its relevant resources to the production of soybeans, it could produce 10 million units of soybeans. If the United States did the same, it could produce 40 million units of soybeans. On the other hand, if Japan used its resources to produce wheat, it could produce 5 million units of wheat, while the United States could produce 10 million units of wheat. Assume that the trade-off between expanding soybean production and reducing wheat production is always the same.
What is the opportunity cost of producing an additional unit of soybeans in Japan?
What is the opportunity cost of producing an additional unit of soybeans in the United States?
Which country has the comparative advantage in soybean production?
Which country has the comparative advantage in wheat production?
Explain how one could use these answers to argue that mutually advantageous trade can take place.
Answer:
|
Soybeans |
wheat |
|
|
Japan |
10 |
5 |
|
US |
40 |
10 |
Opportunity cost of producing additional unit of soybeans in Japan = Number of unit of wheat Japan forgoes to produce the next unit of Soybean =5/10=1/2
Opportunity cost of producing an additional unit of soybeans in the United States= Number of unit of wheat US forgoes to produce the next unit of Soybean =10/40=1/4
Since opportunity cost of producing additional unit of soybeans in US is less than Japan, US has comparative advantage in soybeans production
Since opportunity cost of producing additional unit of Wheat in Japan is less than US, Japan has comparative advantage in wheat production
