Question

Japan has the ability to produce either 10,000 televisions or 5,000 cars in a day. The United States has the ability to produce 20,000 televisions or 15,000 cars in a day. Japan has the lower opportunity cost of producing televisions, while the United States has the lower opportunity cost of producing cars.

1. The United States has the comparative advantage in: _________.
a.) neither cars nor televisions.
b.) televisions.
c.) cars.
d.) both cars and televisions.
2. Which of the following statements about comparative advantage is true? (please explain)
a.) A country that produces a good the fastest will always have the comparative advantage.
b.) The country with the highest opportunity cost has the comparative advantage.
c.) Comparative advantage will determine the patterns and terms of trade.
d.) Comparative advantage is only relevant to international trade, not local or national trade.

Answer 1

the production of cars

Comparative advantage will determine the patterns and terms of trade.

A country should engage in the production of the product for which it has a comparative advantage. it should import the good for which it does not have a comparative advantage

in this question, US should produce cars and import tvs from Japan

the opportunity cost determines the rate of exchange of goods among countries (the terms of trade)

Step-by-step explanation:

A country has comparative advantage in production if it produces at a lower opportunity cost when compared to other countries.

Opportunity cost of Japan in producing :

TV = 5,000 / 10,000 = 0.5

CARS = 10,000 / 5,000 = 2

Opportunity cost of US in producing :

TV = 15,000 / 20,000= O,75

Cars = 20,000 / 15,000 = 1.33

US has a lower opportunity cost in the production of cars and thus it has a comparative advantage in this production