In other words for every 1 extra unit of food it will

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Unformatted text preview: mic terms, for the United States, the opportunity cost of 1 unit of food is ½ unit of clothing. The process is similar for Japan. We know that Japan can produce either combination C (30 units of food and 120 units of clothing) or combination D (0 units of food and 180 units of clothing). Suppose it is producing combination D. What are the benefits and costs of deciding to produce combination C 398 Chapter 15 International Trade and Economic Development instead? By producing combination C, Japan will make itself better off by 30 additional units of food, but it will have to give up 60 units of clothing to do so. In other words, for every 1 extra unit of food, it will have to give up 2 units of clothing. In economic terms, for Japan, the opportunity cost of 1 unit of food is 2 units of clothing. Thus the opportunity cost of producing 1 unit of food (F) is ½ unit of clothing (C) for the United States and 2 units of clothing for Japan: Opportunity cost of 1 unit of food United States: 1F 1⁄ 2C Japan: 1F 2C We conclude that the United States can produce food more cheaply than Japan. In other words, the United States has a comparative advantage in food production. Food, then, is what the United States should specialize in producing. If we followed this procedure for clothing production, we would find that Japan could produce clothing more cheaply than the United States. The opportunity cost of producing 1 unit of clothing is 2 units of food for the United States and ½ unit of food for Japan. Opportunity cost of 1 unit of clothing United States: 1C 2F Japan: 1C 1⁄ 2F Therefore, Japan has a comparative advantage in clothing production. Clothing, then, is what Japan should specialize in producing. E X A M P L E : Country A can produce either (1) 40X and 20Y or (2) 80X and 0Y. Country B can produce either (1) 20X and 20Y or (2) 40X and 0Y. What is the opportunity cost of producing 1X for both countries, A and B? To find it for country A, we realize that when it goes from producing 40X to 80X, it ends up not producing 20Y. So, country A gets 40 more X at the cost of 20 fewer Y. In other words, for every 2 more X it gets, it gives up 1Y. Or, to state it differently, for every 1 more X it gets, it gives up ½Y. In short, the opportunity cost of 1X is ½Y. Now let’s look at things for country B. When it goes from producing 20X to 40X it gives up producing 20Y. In other words, to 15 (390-427) EMC Chap 15 11/18/05 9:12 AM Page 399 To Mow, or Clean, or Both? ?????????????????? F ourteen-year-old Steve and twelve-year-old Danny are brothers. Their father just told them that each week they must complete two tasks: clean their rooms and mow the lawn. The following table shows how many minutes it takes each brother to do each task: Time to clean both rooms Steve Danny Time to mow lawn 100 minutes 100 minutes 60 minutes 120 minutes Although both Steve and Danny take the same time to clean both rooms, Danny is slower mowing the lawn than Steve. For one, he takes a lot more breaks when mowing the lawn than Steve does. Steve and Danny wonder how they should go about doing what their father told them they need to do. They realize they could each do half of each task, or they could simply split the tasks and each do one. Which is the better way to proceed? Suppose each of the brothers does half of each task. Steve spends 50 minutes on his half of cleaning the rooms, and Danny spends 50 minutes, which is a total of 100 minutes to clean the rooms. Then Steve spends 30 minutes mowing his half of the lawn, and Danny spends 60 minutes mowing, a total of 90 minutes of mowing. To complete both tasks it takes 100 minutes plus 90 minutes, or 190 minutes. Now suppose that Steve only mows the lawn (he specializes), and Danny only cleans the rooms (he specializes). It takes Steve 60 minutes to mow the lawn, and it takes Danny 100 minutes to clean the rooms, which is a total of 160 minutes. The choice is between 190 minutes or 160 minutes. To save time, the brothers should do what each produce 20 more X, it must forfeit 20Y, or for every 1 more X it has to give up 1Y. In short, the opportunity cost of 1X is 1Y. Who is the low-cost producer of X, country A or B? It is country A, because it gives up less (½Y) to produce 1 more X. Benefits of Specialization and Trade Suppose we look at two countries, Japan and the United States. Currently, we assume that each country can produce some food and has a comparative advantage in doing, specialize in one task, and get their duties completed 30 minutes faster, leaving them much more time to do what they want. THINK ABOUT IT In many families, people have certain things that they do and no one else does. For example, a husband may cook and the wife may wash the dishes; a husband may mow the lawn and the wife may wash the clothes. Do you think the jobs that each family member does are the result of comparative advantage or something else? Explain your answer. some clothing. Here are the combinations of the two goods that each country...
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