Comparative Advantage

In Japan, one worker can make 4 tons of rubber or 60 radios. In Malaysia, one worker can make 8 tons of rubber or 30 radios.

a. Who has the absolute advantage in the production of rubber or radios? How can you tell?

b. Calculate the opportunity cost of producing 60 additional radios in japan and in Malaysia. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of radios?

c. Calculate the opportunity cost of producing 8 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber?

d. In this example, does each country have an absolute advantage and a comparative advantage in the same good?

e. In what product should Japan specialize? In what product should Malaysia specialize?

 

a) Malaysia has an absolute advantage in producing rubber.

b) For Japan, 60 additional radio opportunity cost =4*60/60=4 Tons of Rubber.

For Malaysia=8*60/30=16 Tons of Rubber. 

Japan has a comparative advantage in producing radio.

c) 8 additional tons of Rubber opportunity cost for Japan=60*8/4=120 Radios

Malaysia=30*8/8=30 radios.

Malaysia has a comparative advantage in producing rubber

d) Yes

e) Japan will specialize in Producing Radio and Similarly Malaysia in producing rubber.

Step-by-step explanation

a) Malaysia has an absolute advantage in producing rubber. In contrast, Japan has absolute advay in producing Radio since Malaysia can produce more rubber with one labor than Japan and Japan can make more radio.

b) For Japan, 60 additional radio opportunity cost =4*60/60=4 Tons of Rubber.

For Malaysia=8*60/30=16 Tons of Rubber. 

Since Japan has a lower opportunity cost, Japan has a comparative advantage in producing radio.

c) 8 additional tons of Rubber opportunity cost for Japan=60*8/4=120 Radios and Malaysia=30*8/8=30 radios since Malaysia has a lower opportunity cost, Malaysia has a comparative advantage in producing rubber

d) Yes, in this example, Japan has both absolute and comparative advantage in producing Radio and Malaysia in Rubber.

e) Since Japan has a comparative advantage in producing Radio, Japan will specialize in Producing Radio and Similarly Malaysia in producing rubber.