Country A Country B 200 Corn 600 150 375 t00 50 50 75100 150 200 25 cars 50 75 100 cars a) What is the opportunity cost of making cars in each country? Make clear how you find this and what it means. b) If the countries were to specialize and trade, which country should specialize in making cars? Why? c) If the countries specialize completely according to comparative advantage (i.e. each produces only what they have the comparative advantage in) what would be the total production of cars and corn? How does this compare to the total production at their original pre-trade production points?

Country A Country B 200 Corn 600 150 375 t00 50 50 75100 150 200 25 cars 50 75 100 cars a) What is the opportunity cost of making cars in each country? Make clear how you find this and what it means. b) If the countries were to specialize and trade, which country should specialize in making cars? Why? c) If the countries specialize completely according to comparative advantage (i.e. each produces only what they have the comparative advantage in) what would be the total production of cars and corn? How does this compare to the total production at their original pre-trade production points?

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 9PA

See similar textbooks

Similar questions

What is comparative advantage?
What is absolute advantage? What is comparative advantage?
How does comparative advantage lead to gains from trade?
Is it possible to have a comparative advantage in the production of a good but not to have an absolute advantage? Explain.
Table 33.15 shows how the average costs of production for semiconductors (the chips In computer memories) change as the quantity of semiconductors built at that factory increases. Based on these data, sketch a curve with quantity produced on the horizontal axis and average cost of production on the vertical axis. How does the curve illustrate economies of scale? If the equilibrium quantity of semiconductors demanded is 90,000, can this economy take full advantage of economies of scale? What about if quantity demanded is 70,000 semiconductors? 50,000 semiconductors? 30,000 semiconductors? Explain how international trade could make it possible for even a small economy to take full advantage of economies of scale, while also benefiting from competition and the variety offered by several producers.
What factors does Paul Krugman identity that supported expanding international trade in the 1800s?
Review the numbers for Canada and Venezuela from Table 33.12 which describes how many barrels of oil and tons of lumber the workers can produce. Use these numbers to answer the rest of this question. Draw a production possibilities frontier for each country. Assume there are 100 workers in each country. Canadians and Venezuelans desire both oil and lumber. Canadians want at least 2,000 tons of lumber. Mark a point on their production possibilities where they can get at least 3,000 tons. Assume that the Canadians specialize completely because they figured out they have a comparative advantage in lumber. They are willing to give up 1,000 tons of lumber. How much oil should they ask for in return for this lumber to be as well off as they were with no trade? How much should they ask for if they want to gain from trading with Venezuela? Note: We can think of this ask as the relative price or trade price of lumber. Is the Canadian ask you identified in (b) also beneficial for Venezuelans? Use the production possibilities frontier graph for Venezuela to show that Venezuelans can gain from trade.