Assume that Freeland could produce 8 units of X and no Y, 16 units of Y and
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Assume that Freeland could produce 8 units of X and no Y, 16 units of Y and no X, or any linear combination in between, and Braveburg could produce 32 units of X and no Y, 48 units of Y and no X, or any linear combination in between.
a. What is the opportunity cost of producing X in Freeland? In Braveburg?
b. If Freeland and Braveburg specialize according to comparative advantage, which directions will goods flow in trade?
c. If trade occurs, what will the terms of trade between X and Y be?
d. How large would transactions costs, transportation costs, or tariffs have to be to eliminate trade between Freeland and Braveburg?
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