Assume that there are two countries - Japan and China. Also, assume that they can produce two homogeneous goods: cars and bikes. In Japan, an average worker produces 10 bikes or 5 cars per month. In China, in contrast, an average worker produces 8 cars or 2 bikes per month

a. What is the opportunity cost of cars and bikes in each country? Please answer with a brief explanation of the relevant opportunity costs in this example.

b. Which country has a comparative advantage in the production of a car vs. a bike? Good Country Bike Car Japan 10 5 China 8 2 5 Please answer with a brief explanation about the comparative advantage.

(Hint: Refer to the answer from question b) c. Suppose that there are 10 workers in each country and China and Japan do not trade any goods with each other. That is, 10 workers in each country produce both cars and bikes in each country. Please draw the production possibility frontier for each country. What is the meaning of the slope in each graph?

d. Suppose that real GDP includes just cars and bikes. The Japan produces 40 bikes and 30 cars, while China produces 20 bikes and 15 cars, and each country has 10 workers and customers who demand both products. The two countries then decide to specialize in the production of just one good based on their comparative advantage and buy the other good from the other country through trade. In each case, however, they want to sell only the excess of the units of the good they specialize in producing beyond what the produced initially. The exchange ratio of cars for bikes in the market is 1 car = 3 bikes. Please draw the post-trade consumption possibility set and mark the combination of cars and bikes at both the initial (pre-trade) equilibrium and the posttrade equilibrium in each country. Also, show graphically the area of the additional consumption possibilities set of cars or bikes in each country. Can you compute the gains from trade for each country?