Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worke
ID: 1194872 • Letter: J
Question
Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios. (10 points in total, 2 each) a. Who has the absolute advantage in the production of rubber or radios? How can you tell? b. Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of radios? c. Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber? d. In this example, does each country have an absolute advantage and a comparative advantage in the same good, or not? e. In what product should Japan specialize? In what product should Malaysia specialize?
Explanation / Answer
a) japan can produce more radios than Malaysia and hence has an absolute advantage in production of radios.Malaysia on the other hand can produce more rubber as compared to Japan hence it has an absolute advantage in production of rubber.
b) Opportunity cost of additional 80 radios in Japan is 5 tons of rubber.This is calculated as
To produce 80 radios Japan sacrifices 5 tons of rubber
To produce 1 radio Japan sacrifices 5/80 tons of rubber.
To produce 80 radios Japan sacrifices 5/80 * 80 = 5 tons of rubber.
In malaysia to produce 40 radios it has to give up 10 tons of rubber
Thus to produce 80 radios it has to give up 10/40 * 80 = 20 tons of rubber.
Thus opportunity cost of producing 80 radios in Malaysia is 20 tons of rubber.
Hence looking at the opportunity costs clearly opportunity cost of producing radios is much lesser in Japan as 5< 20.Thus Japan possess a comparative advantage in the production of radios.
c) Opportunity cost of producing 10 additional tons of rubber in Japan
To produce 5 tons of rubber Japan sacrifices 80 radios.
To produce 1 ton of rubber Japan sacrifices 80/5 radios.
To produce 10 additional tons Japan sacrifices 80/5 * 10 =160 radios.
Thus opportunity cost of producing 10 additional tons of rubber in Japan is 160 radios.
For Malaysia calculation of opportunity cost.
To produce 10 tons of rubber it sacrifices 40 radios.
To produce 1 ton of rubber it sacrifices 40/10 radios.
To produce 10 additional tons of rubber it sacrifices 40/10 * 10 = 40 radios.
Thus opportunity costs of producing 10 additional tons of rubber is 40 radios in Malaysia.
Thus Malaysia has a comparative advantage in production of rubber since the opportunity cost of producing rubber is lesser than it is in Japan.(40<160).
d)Yes in this example both countries have absolute as well as compative advantage in production of same good.
e)Hence Japan with a comparative advantage in production of radios must specialise in production of radios while Malaysia with comparative advantage in production of Rubber must specialise in rubber production.
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