1. Hereland and ereland are two small countries. Ea currently produces both milk and corn, and they do not trade. If Hereland puts all its resources into milk, it can produce 2 tanker truloads, while if it puts all its resources into corn production, it can produce 8 tons. ereland can produce either 2 loads of milk or 2 tons of corn. (Both can also produce any combination on a straight line in between.)

a. Draw and label production-possibilities frontiers for Hereland and ereland.

b. Suppose that Hereland’s citizens would like 1 truload of milk and 6 tons of corn. Can Hereland produce this?

c. Suppose that ereland’s citizens would like 1 load of milk and 2 tons of corn. Can

ereland produce this?

d. What is the slope of Hereland’s PPF? Fill in the blank: “For ea truload of milk that Hereland makes, it must give up making ___ tons of corn.”

e. What is the slope of ereland’s PPF? Fill in the blank: “For ea truload of milk that

ereland makes, it must give up making ___ tons of corn.”

f. Whi country has a comparative advantage in producing milk?

g. Create a table similar to Table 6.1, showing how Hereland and ereland could enter into a trading relationship in order to meet their citizens’ consumption desires as described in

(b) and (c).

h. Suppose that you are an analyst working for the government of Hereland. Write a few sentences, based on the above analysis, advising your boss about whether to undertake trade negotiations with ereland.

i. Would your advice ange if you knew that unemployment in Hereland is high and that retraining corn farmers to be dairy farmers, or vice versa, is very difficult to do?

j. Would your advice ange if ereland insisted in trade negotiations that 1 truload of milk be exanged for exactly 4 tons of corn?