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.
a. 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.
b. Assume that the Canadians specialize
completely because they figured out they have
a
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.
c. 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
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
