Japan and America can each produce 400 million cars a year. America can produce 1 million tons of grain a year, whereas Japan can produce 600 million tons of grain a year.
A.) Draw the production possibilities curve for each country
B.) Who has the absolute advantage in each good
C.) What is the opportunity cost for each country for cars?
D.) What is the opportunity cost for each country for grain?
E.) assume that both countries are splitting their resources equally between cars and grain. How many cars and tons of grain would each country produce? How many cars and tons of grain would be produced in total?
F.) Now assume each country specializes in the good for which they have the comparative advantage. They agree to trade half of what they produce to each other. what is the impact of this arrangement on both countries?