{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

step by step slide gains from trade

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

This preview shows pages 1–3. Sign up to view the full content.

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).

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
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?
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}