Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worke

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. 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)

b) The opportunity cost of producing 1 ton of rubber will be the same as 16 radios in Japan, whereas it for 1 ton of rubber is 4 units of radios in Malaysia.

Hence Malaysia has the comparative advantage of producing rubber than Japan.

When it comes to Radios, Japan can produce 80 radios for 5 tons of rubber, whereas Malaysia requires 10 tons of rubber for 80 tons rubber. So, Japan has comparative advantage of producing radios than Malaysia.

c) For Japan, if 10 additional units of rubber, the opportunity cost will be 15 x 16, that is,for 15 tons of rubber it will be 240 units of radios.

For Malaysia, Malaysia will produce for 10 addition tons to rubber only 80 units of radios. Japan has the comparative advantange in producing rubber.

d) No.

e) Japan should specialize in rubber, and Malaysia in radios.

*****

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