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    Exhibit 2: PPF-under No Specialization No Trade Case

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    jojie dador
    1) In the no-specialization, no-trade case, the US produces and consumes 60 food and 10 clothing, while Japan produces and consumes 10 food and 5 clothing. 2) Under specialization and trade, the US specializes in food (producing 90 units) and Japan specializes in clothing (producing 15 units). They agree on terms of trade of 2 food for 1 clothing. 3) With specialization and trade, both countries increase their consumption - the US consumes 70 food and 10 clothing while Japan consumes 20 food and 5 clothing - showing they are both better off with specialization and trade.

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    Exhibit 2: PPF-under No Specialization No Trade Case

    Uploaded by

    jojie dador
    23 views4 pages
    1) In the no-specialization, no-trade case, the US produces and consumes 60 food and 10 clothing, while Japan produces and consumes 10 food and 5 clothing. 2) Under specialization and trade, the US specializes in food (producing 90 units) and Japan specializes in clothing (producing 15 units). They agree on terms of trade of 2 food for 1 clothing. 3) With specialization and trade, both countries increase their consumption - the US consumes 70 food and 10 clothing while Japan consumes 20 food and 5 clothing - showing they are both better off with specialization and trade.

    Original Description:

    Maam Dismas

    Original Title

    international-trade-module-exhibit-2

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    1) In the no-specialization, no-trade case, the US produces and consumes 60 food and 10 clothing, while Japan produces and consumes 10 food and 5 clothing. 2) Under specialization and trade, the US specializes in food (producing 90 units) and Japan specializes in clothing (producing 15 units). They agree on terms of trade of 2 food for 1 clothing. 3) With specialization and trade, both countries increase their consumption - the US consumes 70 food and 10 clothing while Japan consumes 20 food and 5 clothing - showing they are both better off with specialization and trade.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    23 views4 pages

    Exhibit 2: PPF-under No Specialization No Trade Case

    Uploaded by

    jojie dador
    1) In the no-specialization, no-trade case, the US produces and consumes 60 food and 10 clothing, while Japan produces and consumes 10 food and 5 clothing. 2) Under specialization and trade, the US specializes in food (producing 90 units) and Japan specializes in clothing (producing 15 units). They agree on terms of trade of 2 food for 1 clothing. 3) With specialization and trade, both countries increase their consumption - the US consumes 70 food and 10 clothing while Japan consumes 20 food and 5 clothing - showing they are both better off with specialization and trade.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 4

    N0-Specialization- Specialization -Trade

    No-Trade ( NS-NT) Case (S-T) Case

    (2) (3) (4) (5)


    (1) Production in Exports(-) Consumption in Gains from
    Production and the Import(+) the Specialization
    Country consumption in the S-T Case Terms of Trade are S-T Case and Trade
    NS-NT Case 2F=1C (2) + (3) (4)-(1)

    United States
    Food 60 Point B in 90 Point A in (-) 20 70 10
    Clothing 10 Exhibit 1 0 Exhibit 1 (+)10 10 0
    Japan
    Food 10 Point F in 0 Point H in (+) 20 20 10
    Clothing 5 Exhibit 1 15 Exhibit 1 (-10) 5 0

    column 1 & 2 column 3 column 4 column 5 column 6

    Prove that both countries would be better


    comparative set of favorable
    PPF- under no advantage terms of trade
    off in the specialization trade case than in
    specialization no no specialization no trade case
    trade case

    Exhibit 2
    Column 1&2 - both the the United States and Japan operate independently of each other. The United States
    produces and consumes 60 units of food and 10 units of clothing. Japan produces and consumes 10 units
    of food And 5 units of clothing.

    Column 3- The United States specializes in the production of food; Japan specializes in the production of clothing.

    Column4- The United States and Japan agree to the terms of trade of 2 units of food for 1 unit of clothing .
    they actually trade 20 units of food for 10 units of clothing.

    column 5- Overall the Unite States consumes 70 units of food and 10 units of clothing. Japan consumes
    20 units of food and 5 units of clothing .

    Column 6- consumption levels are higher for both the United States and Japan in the S-T case than in the
    NS-NT case.

    Questions;

    1. What good should he United States specialize in producing?


    2. What good should Japan specialize in producing ?

    Answers;

    Countries specialize in the production of the good in which they have a comparative advantage.
    A country has a comparative advantage in the production of good when it can produce the good
    at lower opportunity cost than another country can.

    United States= specializes Food


    Japan = specializes clothing

    Justifications;

    for example; ( refer to exhibit 1- table) in United States (point -B) the opportunity cost of producing
    1 unit of clothing ( C ) is 3 units of food ( F) ; for every 10 units of clothing it produces, it forfeits
    30 units of food. So the opportunity cost of producing 1 unit of food is ⅓ unit of clothing.

    in Japan ( refer to Exhibit-1 table ; point B) ; the opportunity cost of producing 1 unit of clothing is
    1 unit of food (for every 5 units of clothing it produces, it forfeits 5 units of food). So, in the United
    States, the situation is 1C= 3F or 1F= ⅓C; in Japan the situation is 1C=1F or 1F=1C.

    The United States can produces food at a lower opportunity cost (⅓C, as opposed to 1C in Japan)
    , whreas Japan can produce clothing at a lower opportunity cost ( 1F, as opposed to 3F in the
    United States). Thus, the United States has a comparative advantage in food, and Japan has a
    comparative advantage in clothing.

    The United States specialize in the production of food ( producing 90 units) , and Japan
    specializes in the production of clothing ( producing 15 units). Exhibit 1, United states locates
    at Point A on its PPF, and Japan locates at point H on its PPF ( column 3 in exhibit 2.)

    question # 3.
    How much food to trade for how much clothing?
    answer;

    United States , 3F= 1C for Japan, 1F=1C. We these cost ratios, both countries should be able to
    agree on terms of trade that specify 2F=1C . The United States would benefit by giving up 2 units
    of food instead of 3 units for 1 unit of clothing. Where as Japan would benefit by getting 2 units
    of food instead of only 1 unit for 1 unit of clothing. Both countries trade -in absolute amounts,
    20 units of food for 10 units of clothing ( refer to column 4 of exhibit 2) .

    question #4
    What is the result of the specialization-trade ( S-T) case?

    answer;
    Now the United States produces 901 units of food and trades 20 units to Japan, receiving
    10 units of clothing in exchange. It consumes 70 units of food and 10 units of clothing .
    Japan produces 15 units of clothing and trades 10 to the United States, receiving 20 units
    of food in exchange. It consumes 5 units of clothing and 20 units of food
    ( refer to column 5 of exhibit 2)

    question # 5
    Will they make themselves better off by specializing in producing and trading
    the good in which it has a comparative advantage than in the no-specialization no-trade
    case?
    answer;
    yes, because by comparing the consumption levels in both countries in the two case,
    the United States and Japan each consume 10 more units of food and no less clothing
    in the specialization -trade case than in the no-specialization -no-trade case
    ( refer to column 6 of exhibit 2)

    therefore ; a country gains by specializing in producing and trading the good in which
    it has a comparative advantage.

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