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20 January, 20:34

Suppose that Japan can produce 5 cars in 8 hours and 15 HD TVs in 10 hours. The US can produce 5 cars in 6 hours and 15 TVs in 5 hours. Explain which country has a comparative advantage in producing cars and which country has a comparative advantage in producing TVs. In your answer, be sure to be very specific as to how you identified the comparative advantage in each country and define how one goes about identifying comparative advantage.

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  1. 20 January, 20:40
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    If there is 1 hour of production:

    Cars produced by Japan = 5/8 =.625 cars

    HD TV produced by Japan = 15/10 = 1.5 HD TVs

    Further,

    Cars produced by US = 5/6 =.83 cars

    HD TV produced by US = 15/5 = 3 HD TVs

    So,

    Opportunity cost of a car for Japan = 1.5/.625 = 2.4 units of HD TVs

    Opportunity cost of car for US = 3/.83 = 3.61 units of HD TV

    Since, Japan has lower opportunity cost of producing cars, so Japan has comparative advantage in producing cars.

    Opportunity cost of a HD TV for Japan =.625/1.5 =.42 units of car

    Opportunity cost of a HD TV for US =.83/3 =.28 units of car

    Since US has lower opportunity cost of producing HD TVs, so US has comparative advantage in producing HD TVs.
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