Question

Suppose

JapanJapan

and

GermanyGermany

produce only cell phones and digital music players. Assume that each country uses only labor to produce each​ good, and that the cell phones and digital music players made in

JapanJapan

and

GermanyGermany

are exactly alike. The table below shows how much each country can produce of each good with one hour of​ labor:

Output per Hour of Labor

	Cell Phones	Digital Music Players
JapanJapan	2222	1616
GermanyGermany	44	77

Suppose that

JapanJapan

and

GermanyGermany

do not trade with each other. Each has

20002000

hours of labor with which to produce cell phones and digital music​players, and the countries are currently producing amounts of each good shown in the table​ below:

Consumption with 20002000 Hours of Labor

	Cell Phones	Digital Music Players
JapanJapan	39 comma 60039,600	3 comma 2003,200
GermanyGermany	3 comma 2003,200	8 comma 4008,400

Assume now that each country specializes in producing that good in which it has a comparative advantage. ​ Further, assume for simplicity that one cell phone can be traded for one digital music player.

If

JapanJapan

trades

3 comma 2003,200

cell phones for

3 comma 2003,200

digital music players with

GermanyGermany​,

​then, with​ trade,

JapanJapan

will be able to consume the same number of digital music players and

nothing

additional cell phones

Answer 1

With​ trade, Japan will be able to consume the same number of digital music players and 1,200 additional cell phones.

(Opportunity cost of 1 cell phone in Japan = Digital music players given up/Cell phones produced = 16/22 = 0.73 music players
Opportunity cost of 1 cell phone in Germany = Digital music players given up/Cell phones produced = 7/4 = 1.75 music players
So, Japan has a comparative advantage in cell phones because of lower opportunity cost and thus Japan will only produce cell phones = 2000*22 = 44,000 and Germany will only produce music players = 2000*7 = 14,000

After trade:
Japan: Cell phones = 44,000 - 3200 = 40,800 and Music players = 3200
Change: Cell phones = 40,800 - 39,600 = 1,200 and music players = 3200 - 3200 = 0)