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The diagram shows Japan can produce camcorders at lower costs - its supply curve is lower than the UK. This means that Japan has a comparative advantage in producing camcorders.

In the absence of international trade between the two countries, British consumers would have to buy at a higher equilibrium price than Japanese consumers. Since Japan is more efficient, it makes sense for Japan to specialise in production of camcorders and export their surplus output to the UK at a lower free trade price. At the intermediate price shown in the diagram, (the free trade price) Japan sells exports to the UK for a higher price but this is still lower than the UK equilibrium price. Japan receives revenue from the sale of these exports.

UK consumers can now buy more camcorders at a lower price and have more choice in the market

We are ignoring transportation costs between the two countries and we are assuming that the resources that were previously allocated to producing camcorders......

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Approximate Word Count: 778
Approximate Pages: 4 (250 words per double-spaced page)

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