Here is a case of a world where there are 2 countries. Please read the case and answer each questions.

Case:

• In Country A: 1 car using the same amount of resources and times as it takes to make 3 computers
• In Country B: 1 car using the same amount of resources and times as it takes to make 2 computers
• Cars are worth 2.5 times as much as computers
• There is not trade barrier between the two countries.

Questions:

1) Which country has absolute advantage in producing cars?

2) What is the opportunity cost of production of 1 car for Country A and Country B, respectively?

3) Which product should Country A produce most efficiently? How?

4) How would the production decisions of Country A change if Country B suddenly stop trade?

5) Assuming that a natural disaster hit Country B and many car factories are destroyed, reducing production, how many trade be affected between the two countries? When would the two countries' production decisions change?