Exercise
Two countries: the U.S. and Japan
Two goods: computers and wheat
• One resource: labor, measured in hours
• We will look at how much of both goods each country
produces and consumes - if the country chooses to be self-
sufficient - if it trades with the other country
Computer is on Horizontal axis
.
US
Japan
50,000 labor hours 30,000 labor hours
Computer Wheat Computer Wheat
50,000 0
30,000
0
40,000 10,000 25,000
5,000
30,000 20,000 20,000 10,000
25,000 25,000 15,000 15,000.
20,000 30,000 10,000 20,000
10,000 40,000 5,000
25,000
0
50,000
0
30,000
US
Production
100 hours = 1 computer 125 hours = 1 computer
10 hours 1 ton of wheat 25 hours = 1 ton of wheat
Japan
Production
Computer Wheat
0
500
Computer
240
Wheat
0
a. Calculate the production of computer and wheat for each
country.
b. Draw a production possibility curve for the US. Suppose
the U.S. uses half its labor to produce each of the two
goods. Then it will produce and consume 250 computers
and 2500 tons of wheat. Plot it on the graph.
c. Draw a production possibility curve for Japan. Suppose
Japan uses half its labor to produce each good. Then it will
produce and consume 120 computers and 600 tons of
wheat.
d. Suppose the U.S. produces 3400 tons of wheat. How many
computers would the U.S. be able to produce with its
remaining labor? Draw the point representing this
combination of computers and wheat on the U.S. PPF.
e. Suppose Japan produces 240 computers. How many tons
of wheat would Japan be able to produce with its remaining
labor? Draw this point on Japan's PPF.
f. Suppose the U.S. exports 700 tons of wheat to Japan, and
imports 110 computers from Japan. (So, Japan imports 700
tons wheat and exports 110 computers.) How much each
country gain from trade?
g. Who has the absolute advantages? Comparative
advantages? Why?