Refer to Table: Trade. Japan should specialize in the production of a. cars and

Question

Refer to Table: Trade. Japan should specialize in the production of

a. cars and import airplanes. b. airplanes and import cars. c. both goods and import neither good. d. neither good and import both goods.

Refer to Table: Trade. Which of the following is true and will result in the two countries trading with each other:

a. Korea is willing to sell 2 planes for 9 cars b. Korea is willing to sell 4 cars for 1 plane c. Korea is willing to sell 1 plane for 6 cars d. Korea is willing to sell 3 planes for 1 car

Explanation / Answer

Ans: a. cars and import airplanes.

Explanation: The opportunity cost of prouducing a car in Japan is 0.2 Airplanes (i.e. 16/80 = 0.2) and the opportunity cost of prouducing a car in korea is 0.33 Airplanes (i.e. 16/48 = 0.33). Therefore, Japan has a copmarative advantage in production of Car.

Ans: c. Korea is willing to sell 1 plane for 6 cars

Explanation: The opportunity cost of prouducing a plain in Korea is 3 Cars (i.e. 48/16 = 3 cars) . If Korea will get 6 cars against 1 plane, then it is good for Korea. So, it will be willing to sell 1 plane for 6 cars

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