# Suppose that in a year an American worker can produce 100 shirts or 20 computers and...

Suppose that in a year an American worker can produce 100 shirts or 20 computers and a Chinese worker can produce 100 shirts or 10 computers.

1. For each country, graph the production possibilities frontier. Suppose that without trade the workers in each country spend half their time producing each good. Identify this point in your graphs.

2. Who has the comparative advantage in the production of shirts? What about for computers?

3. If these countries were open to trade, which country would export shirts? Give a specific numerical example and show it on your graphs. Which country would benefit from trade?

4. Explain at what price of computers (in terms of shirts) the two countries might trade.

1. 2. Opportunity Costs are:
China - Computer - 20, So Shirts - 1/20.
America - Computer - 10, So Shirts - 1/10.
As we can see, China needs to give up a fewer number of computer than America to produce an additional shirt, China has a comparitive advantage in shirt production. America then must have a comparative advantage in producing the other good, ie. computers.

3. As China has comparitive advantage in shirt production, so China would export shirts. To understand it with numbers, suppose China has 100 workers, so total worker-hours available = 100 worker-years.
Total Production of Shirts by China = 100*100 = 10,000 Shirts.
China would definitely benefit from trade as it can get more number of computers for the same working hours deployed. Let's say, China gives its 50% of produced shirts to America & in turn America gives 50% of produced computers to China. In this scenario, China will have 5000 of Shirts & 500 Computers, while without trade, it would have had 5000 shirts & only 250 computers with 50% of available working hours deployed to ecah production.

4. Suppose the terms of trade are 1 shirt = 0.15 computers (within the range above):

China specializes in shirts and produces 10,000 shirts and no computers.
Suppose she exports 5,000 of them to the US.
In return, she then imports (0.15*5,000) = 750 computers from the US.

∴ China produces (10,000 shirts, 0 computers) China consumes (5,000 shirts, 750 computers).

The US -- on the other hand – specializes in computer production, thus produces 0 shirts and 2,000 computers.
If she exports 750 computers to China, she gets 5000 shirts at the current terms of trade. This means she has (2000-750) =1250 computers left to consume domestically.

∴ The US produces (0 shirts, 2,000 computers) The US consumes (5,000 shirts, 1,250 computers).
Thus both China and the US are better off than before they specialized, since, recalling from (b) above, the autarky (no trade) production and consumption bundles were: China (5,000 shirts, 500 computers).  US (5,000 shirts, 1,000 computers) 

#### Earn Coin

Coins can be redeemed for fabulous gifts.

Similar Homework Help Questions
• ### Suppose that in a year an American worker can produce 60 shirts or 30 computers and...

Suppose that in a year an American worker can produce 60 shirts or 30 computers and a Chinese worker can produce 60 shirts or 12 computers. There are 1 million workers in each country. Use the blue line (circle symbol) to graph the production possibilities frontier (PPF) for the United States, and use the green line (triangle symbol) to graph the production possibilities frontier for China. Suppose that without trade the workers in each country spend half their time producing...

• ### Suppose that in a year an American worker can produce 80 shirts or 20 computers and...

Suppose that in a year an American worker can produce 80 shirts or 20 computers and a Chinese worker can produce 60 shirts or 20 computers. There are 1 million workers in each country. Use the blue line (circle symbol) to graph the production possibilities frontier (PPF) for the United States, and use the green line (triangle symbol) to graph the production psies frontier for China 30 27 24 21 18 China PPF 15 U.S. without Trade China without Trade...

• ### 14. Problems and Applications Q8 Suppose that in a year an American worker can produce 100...

14. Problems and Applications Q8 Suppose that in a year an American worker can produce 100 shirts or 20 computers and a Chinese worker can produce 100 shirts or 10 computers. blue line (circle symbol) to graph the production possibilities frontier (PPF) for the United States, and use the green line (triangle symbol) to graph the production possibilities frontier for China. 30 T 27 U.S PPF China PPF 15 12 U.S. without Trade China without Trade 0 10 20 30...

• ### 8. Problems and Applications Q8 Suppose that in a year an American worker can produce 60...

8. Problems and Applications Q8 Suppose that in a year an American worker can produce 60 shirts or 30 computers and a Chinese worker can produce 60 shirts or 12 computers There are 1 million workers in each country Use the blue line (circle symbol) to graph the production possibilities frontier (PPF) for the United States, and use the green line (triangle symbol) to graph the production possibilities frontier for China U.S. PPF 21 18 S15 China PPF U.S. without...

• ### 8. Problems and Applications Q8 Suppose that in a year an American worker can produce 60...

8. Problems and Applications Q8 Suppose that in a year an American worker can produce 60 shirts or 30 computers and a Chinese worker can produce 60 shirts or 12 computers. There are 1 million workers in each country. Use the blue line (circle symbol) to graph the production possibilities frontier (PPF) for the United States, and use the green line (triangle symbol) to graph the production possibilities frontier for China. U.S. PPF China PPF Quantity of Computers (Millions) HHHHHHHHHH...

• ### 2. Problems and Applications Q2 An American worker can produce either 5 cars or 9 tons...

2. Problems and Applications Q2 An American worker can produce either 5 cars or 9 tons of grain a year. A Japanese worker can produce either 3 cars or 9 tons of grain a year. To keep things simple, assume that each country has 100 million workers. Complete the following table with the number of workers needed to make one car or 1 ton of grain in the United States and Japan. Workers Needed to Make 1 Car 1 Ton...

• ### 2. Problems and Applications Q2 An American worker can produce either 5 cars or 9 tons...

2. Problems and Applications Q2 An American worker can produce either 5 cars or 9 tons of grain a year. A Japanese worker can produce either 3 cars or 9 tons of grain a year. To keep things simple, assume that each country has 100 million workers. Complete the following table with the number of workers needed to make one car or 1 ton of grain in the United States and Japan. Workers Needed to Make 1 Car1 Ton of...

• ### ignore the writing. Suppose France can produce four phones or three computers with one unit of...

ignore the writing. Suppose France can produce four phones or three computers with one unit of labor, and Sweden can produce one phone or two computers with one unit of labor. Each country has 600 units of labor. a) Draw a table for both countries with 4 columns labeled Max Phones, Max Computers, Cost Phone, Cost Computer b) Draw the PPF for Both Countries (two separate graphs) c) Find the absolute advantage for each country d) Find the comparative advantage...

• ### Question 1.Susan can brew 5 gallons of root beer in an hour or she can make...

Question 1.Susan can brew 5 gallons of root beer in an hour or she can make 4 pizzas in an hour. Becky can brew 7 gallons of root beer in an hour or she can make 5 pizzas in an hour. Susan's opportunity cost of making a pizza is gallons of root beer. Becky's opportunity cost of making a pizza is gallons of root beer. Enter numbers rounded to two decimal places. Question 2 Bill and Fred bake cakes and...

• ### Question 9 If a country has a comparative advantage in producing fish, then they must also...

Question 9 If a country has a comparative advantage in producing fish, then they must also have an absolute advantage in producing fish. True or False Question 11 If John can produce a good in less time than Fred then he has an absolute advantage in producing that good. True or False Question 12 Latasha can read 30 pages of economics in an hour. She can also read 20 pages of sociology in an hour. She spends 4 hours per...

Free Homework App