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( 2 8 Points ) The following are production possibilities tables for Mexico and the United States. Also, for simplicity, suppose that the labor resources
Points The following are production possibilities tables for Mexico and the United States. Also, for simplicity, suppose that the labor resources in the United States and Mexico are of equal size. Assume that before specialization and trade, the production and consumption for Mexico is alternative and for the United States is alternative T Table : Mexico's Production Possibilities Table in Tons Table : US Production Possibilities Table in Tons A Points Draw the production possibility frontiers PPF for each country in the absence of trade. B Points Which country has an absolute advantage in the production of apples? strawberries? C Points What is the opportunity cost of the two products within the two countries? D Points Which country has a comparative advantage in the production of apples? strawberries? E Points Are opportunity costs such that the two areas should specialize? If so what product should each produce? F Points What is the total gain in apples' and strawberries' output that would result from such specialization? G Points What are the limits of the terms of trade? H Points Suppose actual terms of trade are ton of apples for tons of strawberries and tons of apples are exchanged for tons of strawberries. Use this information to draw a trading possibility curve along with the PPFs for each country. I. Points What are the gains from specialization and trade for each country? J Points Explain why this illustration allows you to conclude that specialization according to comparative advantage results in more efficient use of world resources.
Points The following are production possibilities tables for Mexico and the United States. Also,
for simplicity, suppose that the labor resources in the United States and Mexico are of equal size.
Assume that before specialization and trade, the production and consumption for Mexico is
alternative and for the United States is alternative T
Table : Mexico's Production Possibilities Table in Tons
Table : US Production Possibilities Table in Tons
A Points Draw the production possibility frontiers PPF for each country in the absence of
trade.
B Points Which country has an absolute advantage in the production of apples?
strawberries?
C Points What is the opportunity cost of the two products within the two countries?
D Points Which country has a comparative advantage in the production of apples?
strawberries?
E Points Are opportunity costs such that the two areas should specialize? If so what
product should each produce?
F Points What is the total gain in apples' and strawberries' output that would result from
such specialization?
G Points What are the limits of the terms of trade?
H Points Suppose actual terms of trade are ton of apples for tons of strawberries and
tons of apples are exchanged for tons of strawberries. Use this information to draw a
trading possibility curve along with the PPFs for each country.
I. Points What are the gains from specialization and trade for each country?
J Points Explain why this illustration allows you to conclude that specialization according to
comparative advantage results in more efficient use of world resources.
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