Daily Output of Japan and U.S.
Table 18.2
-Refer to Table 18.2.After trade begins,________ will specialize in the production of stereos and ________ will specialize in the production of tractors.

Question

Daily Output of Japan and U.S.
  Table 18.2
-Refer to Table 18.2.After trade begins,________ will specialize in the production of stereos and ________ will specialize in the production of tractors.

Quizplus · Accepted Answer

Japan has a comparative advantage in producing stereos since it has a lower opportunity cost of producing them (2 tractors) compared to the U.S. (3 tractors). On the other hand, the U.S. has a comparative advantage in producing tractors since it has a lower opportunity cost of producing them (1 stereo) compared to Japan (2 stereos). Therefore, after trade begins, Japan will specialize in producing stereos and the U.S. will specialize in producing tractors.