Suppose that Japan is a capital abundant country and can produce either capital intensive cars or labor intensive oats.
- Draw the PPF
- Pick and indicate an effcient point of production (IGNORE POINTS OFCOMPLETE SPECIALIZATION)
- graphically illustrate the pre-trade relative price of cars in terms of oats at this production point.
- Suppose Japan experiences a technology innovation that makes only the pro-duction of cars more effcient.In the same diagram demonstrate the change Japan's PPF.
- Brie?y explain and show graphically, what happened to the relative price if Japan keeps the production of cars constant?What would happen to Japanese production if the relative price stayed constant?