Suppose that there are 10 million workers in Japan and that each of these workers can produce either 2 cars or 20 bushels of wheat in a year. The opportunity cost of producing a car in Japan is10 bushels of wheat, and the opportunity cost of producing a bushel of wheat in Japan is1/10 cars.
Use the blue line (circle symbol) to draw Japan’s production possibilities frontier (PPF) on the following graph. Then use the black point (plus symbol) to indicate the consumption bundle Japan can achieve without trade if it chooses to consume 15 million cars.
Now suppose that the United States offers to buy 5 million cars from Japan in exchange for 150 bushels of wheat.
On the previous graph, use the grey point (star symbol) to indicate the consumption bundle Japan can achieve with trade if it continues to consume 15 million cars.
Japanshould accept the deal the United States proposes.