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Exhibit 3-7 Comparative Advantage with Production Possibility Frontiers The tables show several points along the production possibilities frontiers for each country, based on the numbers for what workers produce in Exhibit 3-6 and assuming 40 workers for each country. In the absence of trade, each country would most prefer point A, given its production possibilities. While a point like B provides more of both goods, in a world without trade, a choice like B is impossible. Through specialization and trade, a point like B becomes possible for both countries, showing that both countries can benefit from trade. 12.000 How many workers Output of Output of 10,000 producing each good? shoes Refrigerators 40 to shoes, ( lo 10,000 pairs O refrigerators 8,000 refrigerators 30 to shoes, 10 10 7,500 pairs 10,000 sBoys 6,000 refrigerators refrigerators 4.000 20 to shoes, 20 to 5,000 pairs 20.000 refrigerators refrigerators 2,000 10 to shoes, 30 to 2,500 pairs 30,000 refrigerators refrigerators 0 to shoes, 40 to 0 pairs 40.000 20,000 40,000 refrigerators refrigerators Refrigerators (a) U.S. PPF (40 workers) 12,000 How many workers Output of Output of producing each good? shoes Refrigerators 10.000 40 to shoes, O to 8,000 pairs 0 refrigerators 8.000 refrigerators 30 lo shoes, 10 to 6,000 pairs 2,500 soous 6,000 - refrigerators refrigerators 20 to shoes, 20 to 4,000 pairs 5,000 4.000 refrigerators refrigerators 2.000 - 10 to shoes, 30 to 2,000 pairs 7,500 refrigerators refrigerators 0 to shoes, 40 to 0 pairs 10.000 0 10,000 30,000 50,000 refrigerators refrigerators Refrigerators (b) Mexico PPF (40 workers) 3) If two countries are fairly similar and have workers of the same general productivity levels, explain if there can be any economic gains from trade for them? Why or why not? 4) Suppose that an industry has international free trade: A) Explain the effect on competition? B) Explain how this will affect consumers