.ll AT&T57%3:52 PMHW 1.pdfd) Congress is currentuy considering a hew immigration policy that would allOw people wIththe entrepreneurial skills and the money to start new businesses permission to emigrate tothe U.S. if they start a business in this country that employs at least 5 U.S. workers. Showhow you would represent the impact of this policy on the U.S. Explain briefly why youbelieve your picture changes in the way you illustratedII. Gains from TradeSuppose the following table provides the production possibilities for the only two countries inthe world. These two countries can produce only these two goods. Assume resources areidentical in production. Use this information to show how trade benefits the world and the twoindividual countries. Also assume the countries are able to produce with no idle resources andno production mistakesSilverDiamond180270AustraliaCanada18090a) Illustrate the production possibilities for these two countries by drawing their PPF, withsilver measured on the horizontal axis and diamonds measured on the vertical axis. (Makesure you use a ruler to draw PPFSb) Assuming these two countries decide to remain self-sufficient and not engage in trade witheach other, ilustrate the consumption possibilities for these two countries by drawing theirCPF. How were you able to determine the CPF8?1c) Show the actual production levels of each country assuming the countries are self-sufficientand don't trade with each other and allocate halftheir resources to the production ofeach good. Label this point a on the graphs.d) Who has the absolute advantage in producing silver and who has the absolute advantage inproducing diamonds? Explain how you determined thise) Who has the comparative advantage in producing silver and who has the comparativeadvantage in producing diamonds? Clearly show exactly how you were able to determinethisf) What would be your trade advice to these two countries? (i.e. who should specialize is whatgood?)g) Illustrate your trade advice by showing the free trade production levels of each country onits PPF. Label this point bh) Use the following table to show how free trade with these countries following your tradeadvice benefits the world. What is the "gains from trade"? What gives rise to this gain inworld-wide production?Specialize and free tradeSilverSelf-sufficient and no tradeSilverDiamondDiamondAustraliaCanadaWorldGive a viable trade agreement for these two countries, which shows that both countries arebetter off with this trade agreement. How much silver will Australia end up consuming andhow many diamonds will it end up consuming? How much silver will Canada end upconsuming and how many diamonds will it end up consuming? Show this consumptionpoint for each country on its graph. Label the free trade consumption point with the pointC.j)For Australia, give a list of who wins from this free trade agreement (and why they win)and who loses (and why they lose).III. Supply and Demand Changes (be sure to label the axis on all of your graphs)

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I need help with question 2 H-J. This is the whole question. I don’t understand what we are filling in 

.ll AT&T
57%
3:52 PM
HW 1.pdf
d) Congress is currentuy considering a hew immigration policy that would allOw people wIth
the entrepreneurial skills and the money to start new businesses permission to emigrate to
the U.S. if they start a business in this country that employs at least 5 U.S. workers. Show
how you would represent the impact of this policy on the U.S. Explain briefly why you
believe your picture changes in the way you illustrated
II. Gains from Trade
Suppose the following table provides the production possibilities for the only two countries in
the world. These two countries can produce only these two goods. Assume resources are
identical in production. Use this information to show how trade benefits the world and the two
individual countries. Also assume the countries are able to produce with no idle resources and
no production mistakes
Silver
Diamond
180
270
Australia
Canada
180
90
a) Illustrate the production possibilities for these two countries by drawing their PPF, with
silver measured on the horizontal axis and diamonds measured on the vertical axis. (Make
sure you use a ruler to draw PPFS
b) Assuming these two countries decide to remain self-sufficient and not engage in trade with
each other, ilustrate the consumption possibilities for these two countries by drawing their
CPF. How were you able to determine the CPF8?
1
c) Show the actual production levels of each country assuming the countries are self-sufficient
and don't trade with each other and allocate half
their resources to the production of
each good. Label this point a on the graphs.
d) Who has the absolute advantage in producing silver and who has the absolute advantage in
producing diamonds? Explain how you determined this
e) Who has the comparative advantage in producing silver and who has the comparative
advantage in producing diamonds? Clearly show exactly how you were able to determine
this
f) What would be your trade advice to these two countries? (i.e. who should specialize is what
good?)
g) Illustrate your trade advice by showing the free trade production levels of each country on
its PPF. Label this point b
h) Use the following table to show how free trade with these countries following your trade
advice benefits the world. What is the "gains from trade"? What gives rise to this gain in
world-wide production?
Specialize and free trade
Silver
Self-sufficient and no trade
Silver
Diamond
Diamond
Australia
Canada
World
Give a viable trade agreement for these two countries, which shows that both countries are
better off with this trade agreement. How much silver will Australia end up consuming and
how many diamonds will it end up consuming? How much silver will Canada end up
consuming and how many diamonds will it end up consuming? Show this consumption
point for each country on its graph. Label the free trade consumption point with the point
C.
j)
For Australia, give a list of who wins from this free trade agreement (and why they win)
and who loses (and why they lose).
III. Supply and Demand Changes (be sure to label the axis on all of your graphs)
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.ll AT&T 57% 3:52 PM HW 1.pdf d) Congress is currentuy considering a hew immigration policy that would allOw people wIth the entrepreneurial skills and the money to start new businesses permission to emigrate to the U.S. if they start a business in this country that employs at least 5 U.S. workers. Show how you would represent the impact of this policy on the U.S. Explain briefly why you believe your picture changes in the way you illustrated II. Gains from Trade Suppose the following table provides the production possibilities for the only two countries in the world. These two countries can produce only these two goods. Assume resources are identical in production. Use this information to show how trade benefits the world and the two individual countries. Also assume the countries are able to produce with no idle resources and no production mistakes Silver Diamond 180 270 Australia Canada 180 90 a) Illustrate the production possibilities for these two countries by drawing their PPF, with silver measured on the horizontal axis and diamonds measured on the vertical axis. (Make sure you use a ruler to draw PPFS b) Assuming these two countries decide to remain self-sufficient and not engage in trade with each other, ilustrate the consumption possibilities for these two countries by drawing their CPF. How were you able to determine the CPF8? 1 c) Show the actual production levels of each country assuming the countries are self-sufficient and don't trade with each other and allocate half their resources to the production of each good. Label this point a on the graphs. d) Who has the absolute advantage in producing silver and who has the absolute advantage in producing diamonds? Explain how you determined this e) Who has the comparative advantage in producing silver and who has the comparative advantage in producing diamonds? Clearly show exactly how you were able to determine this f) What would be your trade advice to these two countries? (i.e. who should specialize is what good?) g) Illustrate your trade advice by showing the free trade production levels of each country on its PPF. Label this point b h) Use the following table to show how free trade with these countries following your trade advice benefits the world. What is the "gains from trade"? What gives rise to this gain in world-wide production? Specialize and free trade Silver Self-sufficient and no trade Silver Diamond Diamond Australia Canada World Give a viable trade agreement for these two countries, which shows that both countries are better off with this trade agreement. How much silver will Australia end up consuming and how many diamonds will it end up consuming? How much silver will Canada end up consuming and how many diamonds will it end up consuming? Show this consumption point for each country on its graph. Label the free trade consumption point with the point C. j) For Australia, give a list of who wins from this free trade agreement (and why they win) and who loses (and why they lose). III. Supply and Demand Changes (be sure to label the axis on all of your graphs)

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Step 1

You may have already calculated opportunity costs in previous parts. Opprtunity cost is lower for Diamonds in Australia and lower for Silver in Canada.

 Therefore,   you know Australia  has a comparative advantage in the production of Diamonds and  Canada  has a comparative advantage in the production of Silver.
 
Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces Diamonds will produce 540 units(270 units + 270 units)  of diamonds  and the country that produces Silver will produce 360 units (180 units+180 units) of Silver. 
(assuming the country now has twice the time/resources etc now that it is specialising in just one product )
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Opportunity cost of producing Diamond Opportunity cost of producing Country Silver Australia 3/2 2/3 1/2 Canada Opportunity cost of producing Country Opportunity cost of producing Silver Diamond Australia 1.5 0.66 Canada 0.5 2

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Step 2

Terms of trade is the rate of exchange between two countries involved in trade. Generally, terms of trade falls between opportunity cost of production of two countries. Let\\\'s say it falls exactly midway between opportunity costs in Australia and Canada as shown below. 

 

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Opportunity cost of producing Opportunity cost of producing Country Silver Diamond Australia 1.5 0.66 Terms of trade 1.33 1 Canada 0.5 2 Price of 1 unit of Silver Price of 1 unit of Diamond Country Australia 1.5 0.66 Terms of trade 1.33 1 Canada 0.5 2

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Step 3

At one time, Australia was producing 360 units of diamon...

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Self-sufficient with no trade Specialization with Trade Silver Diamond Silver Diamond Australia 180 270 C 540 Canada 180 90 360 0 World 360 360 360 540

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