ILIP Normal text Times New- 12 + BIVA OD IE iii I Consider Example 1.1 (Lecture Note 1), Scenario 1, in which countries A and B decide to reallocate their productions and trade with one another. We recall that to utilize their comparative advantages, in the production reallocation, country A only raises Chicken, B only grows Apples Recall that in the Example 1.1, Scenario 1 (Lecture Note 1) we set the trading price to be 1 lb Chicken=1.5 lbs Apples. But we also mentioned that this price is not realistic, because it does not reflect country A's stronger negotiation position (thanks to its absolute productivity dominance over country B). 1. Please come up with a trading price (i.c., how many pounds of apples exchange for one pound of chicken) that countries should negotiate/agree upon that reflects the absolute productivity dominance of country A over country B Productivity # Apples (lbs) # Chicken (lbs) Rel. Prod. Rel. Prod. Apples/ Chicken / farmland (3 farmland (7 Chicken Apples units) units) per unit of per unit of Country A Country B Since country A needs to be more productive than country B, would 1.25 pounds of apples for 1 pound of chicken be appropriate? Let me check my notes 2. What are the gains from trades (i.e., the increases in consumption of Apples and Chicken, compared to the case countries stay in isolation) for each country at that trading price? ILIP Normal text Times New- 12 + BIVA OD IE iii I Consider Example 1.1 (Lecture Note 1), Scenario 1, in which countries A and B decide to reallocate their productions and trade with one another. We recall that to utilize their comparative advantages, in the production reallocation, country A only raises Chicken, B only grows Apples Recall that in the Example 1.1, Scenario 1 (Lecture Note 1) we set the trading price to be 1 lb Chicken=1.5 lbs Apples. But we also mentioned that this price is not realistic, because it does not reflect country A's stronger negotiation position (thanks to its absolute productivity dominance over country B). 1. Please come up with a trading price (i.c., how many pounds of apples exchange for one pound of chicken) that countries should negotiate/agree upon that reflects the absolute productivity dominance of country A over country B Productivity # Apples (lbs) # Chicken (lbs) Rel. Prod. Rel. Prod. Apples/ Chicken / farmland (3 farmland (7 Chicken Apples units) units) per unit of per unit of Country A Country B Since country A needs to be more productive than country B, would 1.25 pounds of apples for 1 pound of chicken be appropriate? Let me check my notes 2. What are the gains from trades (i.e., the increases in consumption of Apples and Chicken, compared to the case countries stay in isolation) for each country at that trading price
