Homework Answers
| Korea | Japan | |
|---|---|---|
| Kimchi | 0.2 | 1 |
| Sushi | 1 | 0.5 |
Now calculating total output
| Korea | Japan | |
|---|---|---|
| Kimchi | 2500 | 1000 |
| Sushi | 500 | 2000 |
B. From the table we can see korea has absolute advantage in production of Kimchi and Japan has absolute advantage in production of Sushi.
Refer the attached picture for PPC
Now, calculating the opportunity cost.
| Korea | Japan | |
|---|---|---|
| 1 unit of Kimchi | 0.2 unit of Sushi | 2 unit of Sushi |
| 1 unit of Sushi | 5 unit of Kimchi | 0.5 unit of Kimchi |
Korea has comparative advantage in production of Kimchi and Japan has comparative advantage in production of Sushi. Refer the table above.
Korea will specialize in Kimchi and Japan will specialize in Sushi. If korea produces sushi then it is required to sacrifice 5 units of kimchi. Therefore korea would be ready to trade for sushi when the number of kimchi is less than 5 units. Korea will trade for any term but less than 5 unit of kimchi.
Now when japan produces kimchi then it has to sacrifice 2 units of sushi. Thus, japan would be ready to trade for any amount greater than or equal to 2 units of sushi. Japan specializes in sushi and it has a cost of 0.5 units of kimchi.
Term of trade 2 units of sushi for 5 units of kimchi.
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