Question

Suppose the United States and Japan have the following production possibility tables:

Japan United States
Bolts of Cloth Tons of Wheat Bolts of Cloth Tons of Wheat
1,000 0 500 0
800 100 400 200
600 200 300 400
400 300 200 600
200 400 100 800
0 500 0 1,000
a. Draw each country’s production possibility curve.
b. In whatgooddoesthe United States have a comparative advantage?
c. Is there a possible trade that benefits both countries?
d. Draw their combinedproduction possibility curve. L04

Answer 1

a) attached below

b) Wheat production

c) Yes there is a possible trade that benefits both countries

d) attached below

Step-by-step explanation:

Opportunity cost can be expressed as

= Value/cost of alternative / value/cost of chosen alternative

a) Draw each country's production possibility curve

attached below

b) United state have a comparative advantage in Wheat production because of lower opportunity cost

c) The possible trade that would benefit both countries is when both countries trade on goods that they have lower comparative opportunity cost

i.e. Japan producing just Bolt cloths while United states produce Wheat alone

d) combined production possibility curve

attached below