4 Consider trade between China and Japan and two industries: iPads and Agric. Th

Question

4 Consider trade between China and Japan and two industries: iPads and Agric. The unit labor requirements of each country are: (JPN) |(CHN) Tech 4 gric. (a) (20 points) Determine what each country will produce, export and import (b) (40 points) Suppose that the government of (CHN) decides to combat famine in the country by the following policy: each time a firm produces one unit of agric, the firm also has to produce and give for free one unit of agric to the Chinese government. Someone argues that this policy will not help reduce famine in China. Explain why

Explanation / Answer

4)

a) The opportunity cost of iPads in china = 3/2 = 1.5

The opportunity cost of iPads in Japan = 4/2 = 2 .

The opportunity cost of producing iPads is lower in China therefore China has comparative advantage in producing iPads and will produce and export iPads and import Agric.

b) The policy will not work because the policy will further increase the opportunity cost of producing the agricultural produce thus Chinese having comparative advantage in iPads will never produce agri products and exportin will cost them more.

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