homework1

Assume that there are only two countries, the kingdoms of Florin and Guilder, each producing only too goods, really big blocks of cheese {X} and wagonloads of grain {Y} with the single input of labor under oonstant costs and perfect competition. Florin, the home country. has 3 million identical workers, each of whom can produce either 2 blocks of X or 6 wagonloads of Y per year. Guilder has 9.6 million workers, each of whom can produce either 1 block of X or 4 loads of Y per year. e. Suppose both countries fully specialize. Show that moving to free trade from the previous points (A and A*) could lead to more total production of both X and Y. f. For each country, assuming that the price of Y relative to the price of X equals to 0.3, show the new Consumption Possibilities Frontier relative to the Production Possibilities Frontier