Suppose that there are 10 million workers in Canada and South Korea and each worker in Canada and South Korea can produce 4 cars per year. A Canadian worker can produce 10 tonnes of grain a year, whereas a South Korean worker can produce 5 tonnes of grain a year. The following table shows the production of grain and cars for the two countries, Canada and South Korea.

For this situation, construct a table outlining the opportunity costs of producing grain and cars in Canada and South Korean.
(b) Graph the production possibilities frontier of the Canadian and South Korean economies.
(c) For Canada, what is the opportunity cost of a car? For Canada, what is the opportunity cost of grain? For South Korea, what is the opportunity cost of a car? For South Korea, what is the opportunity cost of grain?
(d) Which country has an absolute advantage in producing cars? Which country has an absolute advantage in producing grain?
(e) Which country has a comparative advantage in producing cars? Which country has a comparative advantage in producing grain?

Post your answer first

To construct a table outlining the opportunity costs in both countries, you need to compare the amount of grain and cars each country can produce with their given resources.

Table of Opportunity Costs (Grain and Cars)

Grain (tonnes) Cars
Canada 10 4
South Korea 5 4

To graph the production possibilities frontier (PPF) for both countries, you can use the data from the table.

The PPF represents the maximum potential output of one good given a certain amount of another good being produced. In this case, the graph will show the maximum amount of cars that can be produced at different levels of grain production.

To graph the PPF, you plot the combination of grain and car production for each country. The x-axis represents the amount of grain produced, and the y-axis represents the amount of cars produced. Connect the points to form a curve, which represents the PPF.

The opportunity cost of a car is the amount of grain that must be given up to produce an additional car, and the opportunity cost of grain is the amount of cars that must be given up to produce additional grain.

For Canada:
Opportunity cost of a car = 10 tonnes of grain / 4 cars = 2.5 tonnes of grain per car
Opportunity cost of grain = 4 cars / 10 tonnes of grain = 0.4 cars per tonne of grain

For South Korea:
Opportunity cost of a car = 5 tonnes of grain / 4 cars = 1.25 tonnes of grain per car
Opportunity cost of grain = 4 cars / 5 tonnes of grain = 0.8 cars per tonne of grain

In terms of absolute advantage:
Canada has an absolute advantage in producing grain (10 tonnes compared to South Korea's 5 tonnes).
South Korea has an absolute advantage in producing cars (4 cars compared to Canada's 4 cars).

In terms of comparative advantage:
Canada has a comparative advantage in producing cars, as the opportunity cost of a car (2.5 tonnes of grain) is lower than South Korea's (1.25 tonnes of grain).
South Korea has a comparative advantage in producing grain, as the opportunity cost of grain (0.8 cars per tonne of grain) is lower than Canada's (0.4 cars per tonne of grain).