Exhibit 29-3
-Referring to Exhibit 29-3, suppose the posttrade relative price between Japan and Korea is 1 computer per unit of rice. If Japan takes 10 workers out of rice production, puts the 10 workers in computer production, and sells the resulting computers to Korea in exchange for rice, the net gain from trade for Japan is

Question

Exhibit 29-3 
-Referring to Exhibit 29-3, suppose the posttrade relative price between Japan and Korea is 1 computer per unit of rice. If Japan takes 10 workers out of rice production, puts the 10 workers in computer production, and sells the resulting computers to Korea in exchange for rice, the net gain from trade for Japan is

Quizplus · Accepted Answer

Before the trade, Japan can produce either 100 units of rice or 10 computers, while Korea can produce either 50 units of rice or 10 computers. The relative price of 1 computer per unit of rice means that Japan has a comparative advantage in producing computers, while Korea has a comparative advantage in producing rice.

If Japan decides to specialize in computer production and reallocates 10 workers from rice to computer production, it can now produce 20 computers, while its rice production decreases to 80 units. Korea, on the other hand, can now produce 60 units of rice, as it has not changed its production mix.

If Japan sells all 20 computers to Korea at a price of 1 computer per unit of rice, it can acquire 20 units of rice from Korea. However, Japan has given up 10 units of rice from its own production in order to produce computers, so its net gain from trade is 20 - 10 = 10 units of rice.

Therefore, the answer is D) 30 units of rice.

Exhibit 29-3 -Referring to Exhibit 29-3, Suppose the Posttrade Relative Price Between