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Safari File Edit View History Bookmarks Window Help ng.cengage.com World Trade Equilibrium Due on Dec 20 at 11 PM EST Activity Information Attempts: 21 Keep the Highest: 2/9 1. Absolute advantage and comparative advantage Aa Aa Suppose you have the following information on the marginal physical product of labor in rice production and apparel production in Japan and Thailand Marginal Physical Product of Labor Thailand 12 24 Japan Rice (bushels per hour) Apparel (units per hour) 15 Complete the following table by computing opportunity costs of each good in terms of units of another good for both countries Japan Thailand Opportunity cost of rice (units of apparel per bushel) Opportunity cost of apparel (bushels of rice per unit) The information given suggests that Japan has an absolute advantage in the production of that Thailand has an absolute advantage in the production of and The information given suggests that Japan has a comparative advantage in the production of and Thailand has a comparative advantage in the production of

Explanation / Answer

Opportunity cost of rice (units of apparel per bushel) for Japan = 6/15 = 0.4 units of apparel per bushel

Opportunity cost of rice (units of apparel per bushel) for Thailand = 24/12 = 2 units of apparel per bushel

Opportunity cost of apparel (bushel of rice per unit) for Japan = 15/6 = 2.5 bushels of rice per unit of apparel

Opportunity cost of apparel (bushel of rice per unit) for Thailand = 12/24 = 0.5 bushels of rice per unit of apparel

The information given suggests that Japan has an absolute advantage in the production of Rice and Thailand has an absolute advantage in the production of Apparel.

In order for both countries to benefit from exchange the terms of trade must be somewhere between 0.4 and 2 units of apparel per bushel of rice

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