Graph 1 Graph 2 PPF , PPF PRESSURE COOKERS PRESSURE COOKERS AIR FRYERS AIR FRYERSBased on the previous description, the trade-off Austria faces between producing air Fryers and pressure cookers is best represented by V 1. Specialization and production possibilities Suppose Austria produces only pressure cookers and air fryers. The resources that are used in the production of these two goods are not specialize that is, the same set of resources is equally effective at producing both air fryers and pressure cookers. The shape of Austria's production possibilities frontier (PPF) should reflect the fact that as Austria produces more air fryers and fewer pressure cookers, the opportunity cost of producing each additional air fryer The following graphs show two possible PPFs for Austria's economy: a straight-line PPF (PPF1 ) and a bowed-out PPF (PPF2).\fV has an absolute advantage in the production of squash, and V has an absoiute advantage in the production of maize. Elijah's opportunity cost of producing 1 pound of maize is |:] pounds of squash, whereas Aneesha's opportunity cost of producing 1 pound of maize is |:] pounds of squash. Because Elijah has a 'V opportunity cost of producing maize than Aneesha, V has a comparative advantage in the production of maize, and V has a comparative advantage in the production of squash. 3. Gains from trade Suppose there exist two imaginary countries, Everglades and Denali. Their labor forces are each capable of supplying four million hours per week that can be used to produce chinos, pistachios, or some combination of the two. The following table shows the amount of chinos or plstachlos that can be produced by one hour of labor. Chinos Pistachios Country (Pairs per hour of labor) (Pounds per hour of labor) Everglades 5 20 Denali 8 16 2. Comparative and absolute advantage Elijah and Aneesha are farmers. Each one owns a 14-acre plot of land. The following table shows the amount of squash and maize each Farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing squash or maize or to produce squash on some of the land and maize on the rest. Squash Maize (Pounds per acre) (Pounds per acre) Elijah 10 5 Aneesha 18 5 On the following graph, use the blue line (circle symbol) to plot Elijah's production possibilities frontier (PPF), and use the purple line (diamond symbol) to plot Aneesha's PPF. Denali 48 + 42 Consumption After Trade 36 PPF 30 24 BASIL (Millions of pounds) 18 12 A 6 0 0 6 12 18 24 30 36 42 48 ALMONDS (Millions of pounds)4. Specialization and trade When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities Frontiers (PPFs) for Shenandoah and Denali. Both countries produce almonds and basil, each initially (i.e., before specialization and trade) producing 18 million pounds of almonds and 9 million pounds of basil, as indicated by the grey stars marked with the letter A. Shenandoah 48 42 Consumption After Trade 36 30 BASIL (Millions of pounds) 24 18 PPF 12 A 6 0 0 6 12 18 24 30 36 42 48 ALMONDS (Millions of pounds)Cl 1 pair of boots per case of liquor Cl 15 pairs of boots per case of liquor C] 10 pairs of boots per case of liquor [:l 3 pairs of boots per case of liquor Shenandoah Denali 48 48 42 42 36 36 PPF 30 30 24 BASIL (Millions of pounds) 24 BASIL (Millions of pounds) 18 PPF 18 12 12 A 6 6 0 0 0 6 12 18 24 30 36 42 48 0 6 12 18 24 36 42 48 ALMONDS (Millions of pounds) ALMONDS (Millions of pounds)True or False: Without engaging in international trade, Shenandoah and Denali would have been able to consume at the after-trade consumption bundles. (Hint: Base this question on the answers you previously entered on this page.) O True 0 False Everglades Denali Chinos Pistachios Chinos Pistachios (Millions of pairs) (Millions of pounds) (Millions of pairs) (Millions of pounds) Without Trade Production 15 20 8 48 Consumption 15 20 8 48 With Trade Production Trade action Consumption Gains from Trade Increase in ConsumptionThe following graph shows the same PPF for Denali as before, as well as its initial consumption at point A. As you did for Shenandoah, place a black point (plus symbol) on the following graph to indicate Denaii's consumption after trade. 5. The price of trade Suppose that Poland and Liechtenstein both produce boots and liquor. Poland's opportunity cost of producing a case of liquor is 5 pairs of boots while Liechtenstein's opportunity cost of producing a case of liquor is 11 pairs of boots. By comparing the opportunity cost of producing liquor in the two countries, you can tell that V has a comparative advantage in the production of liquor and V has a comparative advantage in the production of boots. Suppose that Poland and Liechtenstein consider trading liquor and boots with each other. Poland can gain from specialization and trade as long as it receives more than V of boots for each case of liquor it exports to Liechtenstein. Similarly, Liechtenstein can gain from trade as long as it receives more than V of liquor for each pair of boots it exports to Poland. Based on your answer to the last question, which of the Following prices of trade (that is, price of liquor in terms of boots) would allow both Liechtenstein and Poland to gain from trade? Check all that apply. In the following table, enter each country's production decision on the third row of the table (marked "Production"). Suppose the country that produces chinos trades 18 million pairs of chinos to the other country in exchange for 54 million pounds of pistachios. In the following table, select the amount of each good that each country exports and imports in the boxes across the row marked "Trade Action," and enter each country's final consumption of each good on the line marked "Consumption." When the two countries did not specialize, the total production of chinos was 23 million pairs per week, and the total production of pistachios was 68 million pounds per week. Because of specialization, the total production of chinos has increased by million pairs per week, and the total production of pistachios has increased by million pounds per week. Because the two countries produce more chinos and more pistachios under specialization, each country is able to gain from trade. Calculate the gains from trade-that is, the amount by which each country has increased its consumption of each good relative to the first row of the table. In the following table, enter this difference in the boxes across the last row (marked "Increase in Consumption").Shenandoah has a comparative advantage in the production of "I'r , while Denali has a comparative advantage in the production of 'l" . Suppose that Shenandoah and Denali specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total of|:| million pounds of almonds and C] million pounds of basil. Suppose that Shenandoah and Denali agree to trade. Each country focuses its resources on producing only the good in which it has a comparative advantage. The countries decide to exchange 6 million pounds of almonds For 6 million pounds of basil. This ratio of goods is known as the price of trade between Shenandoah and Denali. The following graph shows the same PPF for Shenandoah as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Shenandoah's consumption after trade. Note: Dashed drop lines will automatically extend to both axes. Suppose that initially Denali uses 1 million hours of labor per week to produce chinos and 3 million hours per week to produce pistachios, while Everglades uses 3 million hours of labor per week to produce chinos and 1 million hours per week to produce pistachios. As a result, Everglades produces 15 million pairs of chinos and 20 million pounds of pistachios, and Denali produces 3 million pairs of chinos and 48 million pounds of pistachios. Assume there are no other countries willing to engage in trade, so, in the absence of trade between these two countries, each country consumes the amount of chinos and pistachios it produces. Everglades's opportunity cost of producing 1 pair of chinos is V of pistachios, and Denali's opportunity cost of producing 1 pair of chinos is '1" of pistachios. Therefore, 'I" has a comparative advantage in the production of chinos, and '1" has a comparative advantage in the production of pistachios. Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces chinos will produce |:| million pairs per week, and the country that produces pistachios will produce |:] million pounds per week