In one year, two producers, Bjorn and Xian, can produce boats and cars according to the production possibilities given in the following table:

a. Graph the production possibilities curves for the two producers, assuming constant opportunity costs. 

b. Which good does Bjorn have comparative advantage in producing? Why?

c. Which good does Xian have comparative advantage in producing? Why?

d. If the two individuals specialize in production who should specialize in producing boats and who should specialize in producing cars? Why?

e. Suggest a trade that would make both individuals better off than if they produced and consumed independently of one another. In your graphs, show that their new point of consumption possibilities based on your trade terms moves each individual beyond their PPF.

Transcribed Image Text:

Individual Bjorn Xian Production Possibilities Per Year 15 boats or 10 cars 20 boats or 40 cars