3. Two countries, Taiwan and Korea, produce two goods, avionics and integrated circuits (ICs), using the same technologies and the same factor endowments. Both countries face increasing costs of production. Koreans' taste is biased towards ICs -- that is, compared to the Taiwanese, Koreans have a relatively strong preference for ICs. a. Use a single PPF graph with ICs on the horizontal axis to show each country's complete autarky equilibrium. b. Show on your PPF graph of part a. what will happen when Taiwan and Korea trade with each other. Be sure to indicate clearly on your graph each country's FT consumption, FT production, X, and M. Show the gains from trade and explain intuitively why each country gains from trade. c. Decompose the gains from trade for Korea using the PPF graph; feel free to draw a new PPF graph rather than using the one from part a. Explain as fully as possible what you must do and, using the appropriate terms, indicate the different types of gains from free trade.

3. Two countries, Taiwan and Korea, produce two goods, avionics and integrated circuits (ICs), using the same technologies and the same factor endowments. Both countries face increasing costs of production. Koreans' taste is biased towards ICs -- that is, compared to the Taiwanese, Koreans have a relatively strong preference for ICs. a. Use a single PPF graph with ICs on the horizontal axis to show each country's complete autarky equilibrium. b. Show on your PPF graph of part a. what will happen when Taiwan and Korea trade with each other. Be sure to indicate clearly on your graph each country's FT consumption, FT production, X, and M. Show the gains from trade and explain intuitively why each country gains from trade. c. Decompose the gains from trade for Korea using the PPF graph; feel free to draw a new PPF graph rather than using the one from part a. Explain as fully as possible what you must do and, using the appropriate terms, indicate the different types of gains from free trade.

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter3: Interdependence And The Gains Rrom Trade

Section: Chapter Questions

Problem 3CQQ

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