The following table shows the units of calculators and rice produced by a laborer in a day in Japan and Korea. Table 34.3 Refer to Table 34.3.Determine the limits on the terms of trade for 1 pound of rice.

Question

The following table shows the units of calculators and rice produced by a laborer in a day in Japan and Korea. Table 34.3  Refer to Table 34.3.Determine the limits on the terms of trade for 1 pound of rice.

Quizplus · Accepted Answer

To determine the limits on the terms of trade, we need to find the opportunity cost of producing one pound of rice in each country. In Japan, one laborer can produce either 2 calculators or 1 pound of rice in a day, which means the opportunity cost of making 1 pound of rice is 2 calculators. In Korea, one laborer can produce either 4 calculators or 1 pound of rice in a day, which means the opportunity cost of making 1 pound of rice is 4 calculators.

To find the range of calculators for 1 pound of rice, we need to compare the opportunity costs of the two countries. The lowest opportunity cost of producing 1 pound of rice is in Japan (2 calculators), so Korea would be willing to trade if the terms are better than that. The highest opportunity cost of producing 1 pound of rice is in Korea (4 calculators), so Japan would be willing to trade if the terms are better than that.

So the range of calculators for 1 pound of rice would be between two-fifths of a calculator (2/5) and 1 calculator. This narrows down the options to (E).

The Following Table Shows the Units of Calculators and Rice