Economics assignment

Question # 00002787 Posted By: mac123 Updated on: 10/25/2013 04:55 PM Due on: 10/27/2013
Subject Economics Topic General Economics Tutorials:
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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?
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Tutorials for this Question
  1. Tutorial # 00002594 Posted By: mac123 Posted on: 10/25/2013 04:55 PM
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    The solution of Economics assignment...
    specialization_in_production.doc (160 KB)
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