The following table provides date on the productivity of a single unit of resource in producing wheat and microchips in both canada and jpn
wheat microships
canada 50 20
jpn 2 12
now if terms of trade was 2 microships for one tonne of wheat. Which country would benefit?? explain
Since we can't see the table, we really can't help you with this question.
I believe Ms Sue, the table is a simple 2x2 table, row are countries canada and jpn, columns are products wheat and microchips.
To answer, calculate the price of microchips in terms of wheat in both countries. In canada, to get 1 microchip, it must give up 2.5 units of wheat. Do the same calculation for jpn.
In terms of trade, what will each country do. Hint: Both countries benefit. One country will make chips and trade for wheat, the other will make wheat and trade for chips.
To determine which country would benefit when the terms of trade are 2 microships for one tonne of wheat, we need to calculate the opportunity cost for each country in producing microchips and wheat.
Opportunity cost refers to the value of the next best alternative that is given up when choosing one option over another. In this case, we are looking at the opportunity cost of producing microchips in terms of wheat.
For Canada, the opportunity cost of producing 1 microchip is 2.5 units of wheat (since 2 microships are traded for 1 tonne of wheat). Therefore, in order to produce 1 microchip, Canada must forgo producing 2.5 units of wheat.
For Japan, the opportunity cost of producing 1 microchip is 0.167 units of wheat (since 1 tonne of wheat is traded for 2 microships). Therefore, in order to produce 1 microchip, Japan must forgo producing 0.167 units of wheat.
Now let's compare the opportunity costs of producing microchips in both countries:
- Canada: 2.5 units of wheat
- Japan: 0.167 units of wheat
From this comparison, we can see that Japan has a lower opportunity cost of producing microchips compared to Canada. This means that Japan has a comparative advantage in producing microchips, as it gives up fewer units of wheat to produce them.
Based on the principle of comparative advantage, it is beneficial for countries to specialize in producing goods in which they have a lower opportunity cost. In this case, Japan would benefit by specializing in microchip production and exporting them to Canada in exchange for wheat. Canada, on the other hand, would benefit by specializing in wheat production and importing microchips from Japan.
Therefore, Japan would benefit from the given terms of trade, as it can produce microchips at a lower opportunity cost and trade them for the higher opportunity cost wheat from Canada.