The table given below shows how many smartphones or cars can be produced in China and Japan.

Country Cars Smartphones
China 30 40
Japan 30 20

To achieve gains from specialization and trade

Question

The table given below shows how many smartphones or cars can be produced in China and Japan.

Country	Cars	Smartphones
China	30	40
Japan	30	20

To achieve gains from specialization and trade

BlackTom AI · Accepted Answer

The problem asks which pattern of trade would yield gains from specialization based on comparative advantage.
First, consider the production possibilities: in China, 30 cars or 40 smartphones can be produced; in Japan, 30 cars or 20 smartphones can be produced.
Now, compute opportunity costs to compare comparative advantages. 
- For China, producing 1 car costs sacrificing 40/30 = 1.333 smartphones. Conversely, producing 1 smartphone costs sacrificing 30/40 = 0.75 cars.
- For Japan, producing 1 car costs sacrificing 20/30 ≈ 0.667 smartphones. Conversely, producing 1 smartphone costs sacrificing 30/20 = 1.5 cars.
These numbers show who has the lower opportunity cost in each good. 
- Smartphones: China’s opportunity cost is 0.75 cars per smartphone, while Japan’s is 1.5 cars per smartphone. China has the lower cost here, so China has a comparative advantage in smartphones.
- Cars: China’s opportunity cost is 1.333 smartphones per car, while Japan’s is 0.667 smartphones per car. Japan has the lower cost here, so Japan has a comparative advantage in cars.
With this, the logic of gains from trade suggests each country should specialize in the good for which it has the comparative advantage and then trade for the other good.
Now evaluate the answer choices:
- Option A: “China should export both smartphones and cars.” This ignores the comparative advantage result and would allocate both goods to one country, which is unlikely to maximize total output when both countries can benefit from specialization.
- Option B: “China should export smartphones and import cars.” This aligns with the computed comparative advantages: China exports the good with the lower opportunity cost (smartphones) and imports the good where another country has the lower opportunity cost (cars).
- Option C: “China should import both smartphones and cars.” This would imply no specialization by China, which would miss the gains from trade demonstrated by the opportunity costs.
- Option D: “China should export cars and import smartphones.” This reverses the comparative advantages and would not maximize potential gains from trade given the costs calculated above.
In summary, the correct strategy is for China to specialize in the good with the lower opportunity cost (smartphones) and trade for the other good (cars), matching Option B’s statement.

The table given below shows how many smartphones or cars can be produced in China and Japan. Country Cars Smartphones China 30 40 Japan 30 20 To achieve gains from specialization and trade

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