Question
The US and Japan produce two goods: planes and computers. The US can produce 90,000 computers or 30 planes in a fixed amount of time.
The US and Japan produce two goods: planes and computers. The US can produce 90,000 computers or 30 planes in a fixed amount of time. Japan can produce 75,000 computers or 15 planes.
a. Which country has the absolute advantage in each good? (1 point)
b. Which country has the comparative advantage in each good? (1 point)
c.Draw the PPFs for Japan and the US with computers on the y-axis. (1 point)
d. What is the range of prices in which the US and Japan would benefit from trade? (Note you will need to calculate the range for the price of computers in terms of planes and the price of planes in terms of computers.) (2 points)
e. Suppose the US currently produces 60,000 computers and Japan produces 50,000 computers. How many planes does each country produce? Label these production combinations on the PPFs you drew in part c. (1 point)
f. Consider the state of the world part e. Give a possible trade that would be beneficial for both countries. Show your work (i.e. what would each country produce, trade, and get) and label the new bundles on the PPFs you drew in part
c. Where do these bundles lie with respect to the country's PPF? (2 points)
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