7. Transportation costs and comparative advantage The following graph shows a fictional world economy that consists of only two countries, Greenberg and Borville. Both countries produce cars under increasing-cost conditions. Note that the left-hand part of the diagram is a mirror image of a standard supply-demand diagram, and therefore the supply and demand curves slope in directions opposite their usual directions. Greenberg Borville 30 DG 27 24 SB 21 +18 15 PRICE OF CARS (Thousands of dollars) SG 12 CO 6 DB 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 9 10 CARSIn the absence of trade (that is, autarky), the equilibrium price in Greenberg is s (Hint: Enter all monetary values in full. For example, $7,000 rather than $7.) In the absence of trade, which of the following statements is correct? Greenberg and Borville are equally good at producing cars. Greenberg has a comparative advantage in the production of cars. Greenberg has the comparative disadvantage in production of cars. Now suppose both countries open up to international trade with each other. , and the equilibrium price in Borville is $ For each country, use the previous graph to compute the equalizing price, consumption and production at that price, and the quantity of exports and imports when there are no transportation costs. Enter these amounts into the rst two rows of the following table. Equalizing Price Consumption at Equalizing Price Production at Equalizing Price Exports Imports (Dollars) (Cars) (Cars) (Cars) (Cars) Without Transportation Costs Greenberg 777777 Borville , ,, 7 7 With Transportation Costs Greenberg Borville Now suppose that the per-unit cost of transporting a car between Greenberg and Borville is $6,000. For each country, use the previous graph to compute the equalizing price, consumption and production at that price, and the quantity of exports and imports when transportation costs equal $6,000. Enter these amounts into the last two rows of the previous table. Compare free trade in the absence of transportation costs with the case when transportation costs are included. Compare free trade in the absence of transportation costs with the case when transportation costs are included. Which of the following statements about how the trade between Greenberg and Borville differs in the presence of transportation costs relative to tlade when then are no transportation costs are correct? Check all that apply. Greenberg will produce more, consume less, and import less. Borville will produce more, consume less, and import less. Greenberg will produce less, consume more, and export less. Borville will produce less, consume more, and export less