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?
fdg
To construct a table outlining the opportunity costs of producing grain and cars in Canada and South Korea, we need to compare the production ratios for grain and cars in each country.
First, let's calculate the production ratios for both goods in each country:
In Canada:
- 10 million workers producing 4 cars per worker per year would result in a total production of 10 million x 4 = 40 million cars per year.
- 10 million workers producing 10 tonnes of grain per worker per year would result in a total production of 10 million x 10 = 100 million tonnes of grain per year.
In South Korea:
- 10 million workers producing 4 cars per worker per year would result in a total production of 10 million x 4 = 40 million cars per year.
- 10 million workers producing 5 tonnes of grain per worker per year would result in a total production of 10 million x 5 = 50 million tonnes of grain per year.
Now, let's construct the table outlining the opportunity costs:
Canada South Korea
----------------------------------------------------
Cars 1 car = 2.5 tonnes 1 car = 1.25 tonnes
Grain 1 tonne = 0.4 cars 1 tonne = 0.8 cars
(b) To graph the production possibilities frontier (PPF) of the Canadian and South Korean economies, we can plot the different combinations of car and grain production that are possible given their resources and technology. The PPF represents the maximum levels of production that can be attained for each country when allocating resources efficiently.
(c) For Canada:
- The opportunity cost of a car is 2.5 tonnes of grain (1 car = 2.5 tonnes).
- The opportunity cost of grain is 0.4 cars (1 tonne = 0.4 cars).
For South Korea:
- The opportunity cost of a car is 1.25 tonnes of grain (1 car = 1.25 tonnes).
- The opportunity cost of grain is 0.8 cars (1 tonne = 0.8 cars).
(d) Canada has an absolute advantage in producing cars because it can produce 40 million cars per year compared to South Korea's 40 million cars per year.
Canada has an absolute advantage in producing grain because it can produce 100 million tonnes of grain per year compared to South Korea's 50 million tonnes of grain per year.
(e) Canada has a comparative advantage in producing cars because its opportunity cost of producing cars (2.5 tonnes of grain) is lower than South Korea's opportunity cost (1.25 tonnes of grain).
South Korea has a comparative advantage in producing grain because its opportunity cost of producing grain (0.8 cars) is lower than Canada's opportunity cost (0.4 cars).