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Please help me with this question: Suppose there are two countries: Canada and Japan, each producing 2 goods: cars and wheat. The only input they
Please help me with this question:
Suppose there are two countries: Canada and Japan, each producing 2 goods: cars and wheat. The only input they have is labour. Suppose both countries have 10 million workers. A Canadian worker can produce 10 tonnes of wheat per year or 4 cars. A Japanese worker can produce either 5 tonnes of wheat or 4 cars.
- Make a table of output per worker from the information in the question. Which country has an absolute advantage in Wheat? Cars? Explain why?
- Use the above information to draw the PPF of each country separately. If each country chooses to remain self-sufficient and devotes half its labour towards each good, how much of each good will be produced. Show this point on the PPF graph.
- Construct a table to show the opportunity cost of each country for each of the goods they produce. Which country has a comparative advantage in Wheat? Cars? Explain Why?
- Using the information in the question, what price of wheat and cars will make trade beneficial for both countries if they choose to engage in trade? Explain as much as possible and you can give a range of prices if it is not possible to give the exact price.
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