Total output

Average Productivity of Labor

Total labor

Total Factor Productivity Average Productivity of Capital

Marginal Productivity of Labor

Any point on the
line is efficient
Any point above the
Any point line is not attainable
below the
line is inefficient
Absolute advantage:
If a country requires
less amount of input
for producing a
particular comodity
From this, we can say, it is possible for a country to have comparative
advantage even though it doesn’t have absolute advantage in both the
commodities.

Japan does not have absolute advantage in none of these commodities; US has
absolute advantage.
But Japan has comparative advantage in computer.

COMPARATIVE ADVANTAGE: relative to the other product, how am I

using the labour

Opportunity cost: 5 for Japan and 10 for US

That way, Japan has comparative advantage in producing computer and the
US has comparative advantage in producing wheat.

The country will export the product in which it has comparative advantage.
US said you give me 110 units of computer in return I will give 700 so that means
when you divide 700 by 110 it is coming around 6.4
okay so something around 6 now why this is acceptable it is acceptable because trade
happens at these terms of this is called terms of trade okay this is called terms of
trade.
US is offering 700 tons of wheat for 110 units of computer so that is why it is called
terms of trade you divide 700 by 110 so it would be something around uh six point
more than six
since this value is more than 10 which is the opportunity cost of for the US
opportunity cost of weight into opportunity cost of computer in terms of wheat is 10
for the US so us is offering a value Which is less than 10. and this value is acceptable
for the ways because this is more than 5.
So, in terms of trade which is more than 5 and less than 10 would be a meaningful
terms of trade for trade to happen.

Please keep this thing in mind so not any terms of trade would be acceptable or a
meaningful terms of trade for trade to happen it should be more than the opportunity
cost of one country and less than the opportunity cost of another country