Suppose that there are two products: clothing and soda. Both Brazil and the United States produce each product. Brazil produces 100,000 units of clothing per year and 50,000 cans of soda. The United States produces 65,000 units of clothing per year and 250,000 cans of soda. Assume that costs remain constant.
- What would be the production possibility frontiers for Brazil and the United States?
- Without trade, the United States produces 26,000 units of clothing and 150,000 cans of soda.
- Without trade, Brazil produces 40,000 units of clothing and 30,000 cans of soda.
- Denote these points on each other’s production possibility frontier.
- What is the marginal transformation rate for each country?
- Should the two countries specialize and trade?
- If so, who has the comparative advantage in what product?
- Once they specialize, how much does output increase?
- What are the terms of trade if the United States trades 1 can of soda for 5 units of clothing?
- Are the consumers in each country better off?
Specialization in Production
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Specialization xx xxxxxxxxxx
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Running xxxxx xxxxxxxxxxxxx xx PRODUCTION 1 SPECIALIZTION IN xxxxxxxxxxxxxxx xxxx xx xxxxxxxxxxx �10�
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January xxx xxxx
Specialization xx Production
Production xxxxxxxxxxx frontier xxxxx xx a xxxxx or xxxxx xxxx xxxxxxxxx the production rates of xxx commodities that xxxxxxx the same xxxxx xxxxx xx xxxxxxxxxx xxxxxxxx xxx xxx curve explains the xxxxxxx particular production xxxxx of xxx product as x xxxxxxxxxxx of xxxxxxxxxx level of another. xxx xxxxxxxx aim is to describe production xxxxxxxxxx xx xxx xxxxxxxxxxx of xxx particular xxxxxxxxxx xxxx For an xxxxxxx xx increase xxx xxxxxxxx xx goods, xxxxxxxxxx xx another xxx to be sacrificed xxxxxxxx xxxxxx The xxxxxxxx of PPF xx any point xx
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