Suppose the U.S. and Japan trade with each other. For simplicity, assume that the only 2 goods that are traded are phones and bikes. The figure below summarizes the impact. of trade in the United States. Without trade it could reach any point on its production possibility frontier (PPF) and trade allows it to afford any point on the red line. As shown in the figure, the U.S. optimally chooses point C, i.e. consumers pick 60 bikes and 20 phones. QBikes ?? B 60 ?? A PPF Slope: -2 Slope: -1 20 50 QPhones Figure 1: Production Possibilities and Trade in the U.S. Answer the following questions based on Figure 1: 1. Based on the graph, which good does the U.S. specialize in? 1 2. Using the slopes given in the figure, how many bikes would the U.S. at most be able to produce (point (A))? How many can it afford with trade (point (B))? 3. With trade, U.S. consumption is given at point C: 60 bikes and 20 phones. Which good and how much of it does the U.S. export. How much of which good is imported? 4. Suppose that without trade, the U.S. consumed 25 of each good. How many bikes could the U.S. have bought with trade if it had kept its phone consumption at 25? Suppose Japan is the only trade partner of the U.S. and we are in an international trade equilibrium, i.e. all U.S. exports equal Japan's imports and vice versa. Suppose Japan's production possibilities are given by the blue line with slope -4 in the figure below and trade allows it to reach the red line with slope -2. Suppose the U.S. and Japan are the only countries trading with each other and use the information given in Figures 1 and 2 to answer the following questions. QBikes 80 Slope: -2 PPF A" ?? Slope: 4 R 20 ?? 40 QPhones Figure 2: Production Possibilities and Trade in Japan 5. Which good does Japan specialize in, i.e. which one does it export? 6. As shown in the figure, Japan optimally chooses consumption point C. Use the information given in Figures 1 and 2 to determine Japan's consumption of bikes (point A) and phones (point B*).