# Helwan University

Fall 2014/2015

Instructors: Dr. Marwa Assem & Dr. Ahmed Abdel-Halim

Solution Key to Assignment 1
Question 1:
Suppose you are given the following information about the productivity of labor in Japan
and India.
Table 1.1: Number of units produced per labor hour
LCDs

Japan
2

India
1

Textiles

5

8

A. In table 1.2 below, calculate the labor cost of producing each good in each country.
Labor cost is the inverse (reciprocal) of productivity. If labor in Japan can produce 2 LCDs
per labor hour, so the cost of each LCD is ½ labor hour; and so forth.
Table 1.2: Labor Costs (in labor hours)
Japan

India

LCDs
Textiles
B. Which country has an absolute advantage in LCDs? In textiles? Explain.
-

Since 2 > 1 (or 0.5 < 1), Japan can produce LCDs at a higher productivity (lower
labor cost). Therefore, Japan has an absolute advantage in producing LCDs.

-

Since 8 > 5 (or 0.125 < 0.2), India can produce textiles at a higher productivity
(lower labor cost). Therefore, India has an absolute advantage in producing textiles.

C. Could international trade occur and be mutually beneficial based on absolute
Yes. Because each country has an absolute advantage in producing one commodity and has
an absolute disadvantage in producing the other commodity. Trade will be mutually
beneficial if Japan specializes in producing and exporting LCDs and India specializes in
producing and exporting textiles.
D. Calculate the opportunity costs of producing LCDs and Textiles in each country. Show