Question
Country A can produce 1,000 bushels of corn if it uses all its resources in the corn industry or 2,000 bushels of wheat if it
Country A can produce 1,000 bushels of corn if it uses all its resources in the corn industry or 2,000 bushels of wheat if it uses all its resources in the wheat industry; costs are constant. a. Draw country A's production possibilities frontier, placing corn on the horizontal axis and wheat on the vertical axis. (1 mark) b. Suppose currently, country A does not trade and consumes 500 bushels of corn. Calculate the consumption of wheat in the absence of trade (autarky situation). (2 mark) c. Illustrate country A's autarky equilibrium in Diagram (a). (1 mark) d. Suppose a trading partner offers to trade corn and wheat with country A at a price ratio of 1. Draw the term of trade line in Diagram (a). (1 mark) e. Country A specialized its production according to comparative advantage. Would country A specialize in wheat or corn? Why? (2 marks) f. Assume country A continues to consume 500 bushels of corn. Would country A export wheat or corn? How much? (3 marks) g. Would country A import wheat or corn? How much? (3 marks) h. Illustrate country A's trade equilibrium in Diagram (a). (2 marks)
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