Question

MC Qu. 117 Suppose the United States and Japan... Suppose the United States and Japan each produce only two goods and have the production possibilities shown in the figure. Without trade, Japan produc

Answer 1

Trade allows nations to specialize in producing the goods they have a comparative advantage in, which leads to increased efficiency and higher total output.

Step-by-step explanation:

Trade allows nations to specialize in producing the goods they have a comparative advantage in, which leads to increased efficiency and higher total output. In the case of the United States and Japan, let's assume that Japan has a comparative advantage in producing shoes, while the United States has a comparative advantage in producing refrigerators.

Without trade, Japan would produce and consume at point A on its production possibilities curve, while the United States would produce and consume at point B. However, if they engage in trade, Japan can specialize in producing shoes and export them to the United States, while the United States can specialize in producing refrigerators and export them to Japan.

This specialization and trade would allow both countries to consume at a point outside their production possibilities curve, referred to as points C and D. The total output and consumption of both goods would increase with trade compared to the situation without trade. Therefore, engaging in trade benefits both the United States and Japan.