Mexico and the United States can both produce food and toys. Mexico has 100 workers and the United States has 300 workers. If they do not trade, the United States consumes 10 units of food and 10 toys, and Mexico consumes 5 units of food and 1 toy. The following table shows how many workers are necessary to produce each good:

a. In the absence of trade, how many units of food and toys can the United States produce? How many can Mexico produce?

b. Which country has a comparative advantage in producing food? In producing toys?

c. Draw the production possibility for each country and show where the two produce without trade. Label the axes accurately.

d. Draw the production possibility frontier with trade.

e. Show that both countries can benefit from trade.
(Hint: See Solved Problem 10.5.) M 5. Efficiency and Equity