Question

Suppose that a worker in Russia can produce either 10 units of grain or two units of rice per year, and a worker in Japan can produce either five units of grain or 15 units of rice per year. There are 20 workers in Russia and 10 workers in Japan. Currently the two countries do not trade. Russia produces and consumes 100 units of grain and 20 units of rice per year. Japan produces and consumes 50 units of grain and no rice per year. The combined output of the two countries is therefore 150 units of grain and 20 units of rice per year. If the two countries decided to trade and completely specialised in producing the good for which each has a comparative advantage, the combined yearly output of the two countries would be

Answer 1

Answer:

Russia will produce 200 units of grains and Japan will produce 150 units of rice.

Explanation:

A worker in Russia can produce 10 units of grain or 2 units of rice per year.

A worker in Japan can produce 5 units of grain or 15 units of rice per year.

Russia has 20 workers and Japan has 10 workers.

Russia can produce 200 units of grain or 40 units of rice per year employing all its workers.

Japan can produce 50 units of grain or 150 units of rice per year employing all its workers.

The opportunity cost of producing a unit of grain for Russia

= $\frac{What\ is\ sacrificed}{What\ is\ gained}$

= $\frac{40}{200}$

= 0.2

The opportunity cost of producing a unit of grain for Japan

= $\frac{What\ is\ sacrificed}{What\ is\ gained}$

= $\frac{150}{50}$

= 3

Russia has a comparative advantage in producing grains as it has lower opportunity cost.

The opportunity cost of producing a unit of rice for Russia

= $\frac{What\ is\ sacrificed}{What\ is\ gained}$

= $\frac{200}{40}$

= 5

The opportunity cost of producing a unit of rice for Japan

= $\frac{What\ is\ sacrificed}{What\ is\ gained}$

= $\frac{50}{150}$

= 0.333

Japan has a comparative advantage in producing rice as it has lower opportunity cost.

So, Russia will produce 200 units of grains and Japan will produce 150 units of rice.