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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xxxxxxx Head: SPECIALIZTION xx PRODUCTION 1 SPECIALIZTION xx PRODUCTION � PAGE \* MERGEFORMAT �10�
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xxxxxxx 21, 2013
Specialization in xxxxxxxxxx
Production possibility xxxxxxxx xxxxx is a chart xx xxxxx xxxx xxxxxxxxx xxx xxxxxxxxxx xxxxx xx two xxxxxxxxxxx that utilize xxx same fixed xxxxx xx xxxxxxxxxx xxxxxxxx The PPF curve explains xxx highest particular xxxxxxxxxx level xx xxx product xx a xxxxxxxxxxx of production xxxxx xx another. xxx ultimate aim xx xx xxxxxxxx xxxxxxxxxx xxxxxxxxxx in the xxxxxxxxxxx of xxx xxxxxxxxxx xxxxxxxxxx xxxx For xx economy to xxxxxxxx xxx quantity of goods, production of another xxx xx xx sacrificed (Lipsey, 1975). xxx gradient xx xxx xx any point in xxxx xx the opportunity xxxx of production.
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xxxxxxxx that xxx xxxxxxxxxxx cost xxx production of xxx xxx commodities xx xxxxxxxxx the PPF xxxx take x xxxxxxxx line. In other words, in the xxxx xx
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