step by step slide gains from trade

step by step slide gains from trade - Step by step...

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Step by step directions for the in-class example of gains from trade Critical Information: Assume the US has 50,000 hours of labor available and it takes 100 hours to make a computer and 10 hours to make one ton of wheat. Assume Japan has 30,000 hours of labor available and it takes 125 hours to make a computer and 25 hours to make one ton of wheat. 1. If the US puts all its resources into making computers, how many computers can it make? 2. If the US puts all its resources into making wheat, how many tons of wheat can it make? 3. On a blank piece of paper, draw the PPF for the US. 4. If Japan puts all its resources into making computers, how many computers can it make? 5. If Japan puts all its resources into making wheat, how many tons of wheat can it make? 6. On a blank piece of paper, draw the PPF for Japan 7. Assume that without trade, each country splits it’s time equally between computers and wheat. Label this point “A” on the PPFs (label quantities on the axes too).
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Now assume that the US and Japan decide to trade. In doing so each country shifts production resources toward making the good that they have an advantage in. 8. Which country has the absolute advantage in wheat? 9. Which country has the absolute advantage in computers? 10. If one country has an absolute advantage in both goods, it is still possible for each country to gain from trade. What kind of advantage do the gains from trade come from? What is this advantage based on? 11. What is the opportunity cost of one ton of wheat in the US? 12. What is the opportunity cost of one ton of wheat in Japan? 13. Which country has the lower opportunity cost and therefore comparative advantage in wheat? 14.
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This note was uploaded on 01/05/2012 for the course ECN 222 taught by Professor Lawson during the Summer '08 term at University of North Carolina Wilmington.

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step by step slide gains from trade - Step by step...

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