Question

If there are only two countries and two goods in a highly simplified world, America can
produce at most 200 cars or at most 100 tons of grain per year, whereas Japan can
produce at most 400 cars or at most 50 tons of grain per year.

a. Draw the linear production possibility frontier for the American economy. (Please use
vertical axis to represent cars and use horizontal axis to represent grain.)

b. Draw the linear production possibility frontiers for the Japanese economy. (Please use
vertical axis to represent cars and use horizontal axis to represent grain.)

c. Which country has an absolute advantage in producing cars?

d. Which country has an absolute advantage in producing grain?

e. Which country has a comparative advantage in producing cars?

f. Which country has a comparative advantage in producing grain?

Answer 1

Sol :

a.

b.

Absolute advantage means the ability of the producer to produce a particular goods and service in efficient and effective manner than other producers.

c. Country have absolute Advantage in Producing cars is JAPAN .

As, Japan is producing more cars as compared to America in an efficient manner.

d. Country have absolute advantage in Prodcuing Grains is America .

As, America is producing more quantity of grains as compared to Japan in an efficient manner.

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