Question #47113

Suppose J can produce 6 cell phones or 2 computers with a unit of resources while F can produce 4 cell phones or 1 computer with a unit of resources. Because J has an absolute advantage in both cell phone and computer production, there can be no mutually beneficial trade between the countries. Please explain in detail why this statement is true, false, or uncertain.

Expert's answer

This statement is not true, because we must look at the opportunity costs.

J must give up 3 cell phones to produce each additional computer, so the opportunity cost of 1 computer is 3 cell phones for J. F has to give up 4 cell phones to produce an additional computer, so the opportunity cost of 1 computer is 4 cell phones for country F. Hence J can produce computers cheaper (in terms of cell phones) than F.

Alternatively we could also say that F can produce cell phones cheaper (in terms of computers) than Country B. Because the opportunity cost of 1 cell phone is 0.33 cell phones for J and the opportunity cost of 1 cell phone is 0.25 cell phones for F.

This means that J should specialize in producing computers while F should specialize in producing cell phones.

J must give up 3 cell phones to produce each additional computer, so the opportunity cost of 1 computer is 3 cell phones for J. F has to give up 4 cell phones to produce an additional computer, so the opportunity cost of 1 computer is 4 cell phones for country F. Hence J can produce computers cheaper (in terms of cell phones) than F.

Alternatively we could also say that F can produce cell phones cheaper (in terms of computers) than Country B. Because the opportunity cost of 1 cell phone is 0.33 cell phones for J and the opportunity cost of 1 cell phone is 0.25 cell phones for F.

This means that J should specialize in producing computers while F should specialize in producing cell phones.

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