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(d) Assume the world terms of trade settle at Px/Py = 6/10 =0.6. Draw a box diagram of the two PPCs as illustrated below, labeling
(d) Assume the world terms of trade settle at Px/Py = 6/10 =0.6. Draw a box diagram of the two PPCs as illustrated below, labeling the dimensions of the box and the PPCs, both their intercepts and slopes; labeling the initial consumption points as Ah and Af. Now assume that even though the price ratios have changed consumers in both countries continue to demand 60 units of Y. If trade flows according to the law of comparative advantage, show the new production points, Bh and Bf, and consumption points, Ch and Cf. Shade in the areas representing the gains from trade to each country. Show the volumes of exports and imports of each country. Y
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