Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

PLease help with drawing graph too 5. The price of trade Suppose that Croatia and Liechtenstein both produce olive oil and liquor. Croatia's opportunity cost

PLease help with drawing graph too

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed
5. The price of trade Suppose that Croatia and Liechtenstein both produce olive oil and liquor. Croatia's opportunity cost of producing a case of liquor is 4 crates of olive all while Liechtenstein's opportunity cost of producing a case of liquor is 12 crates of olive oil. 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 olive oil. Suppose that Croatia and Liechtenstein consider trading liquor and olive oil with each other. Croatia can gain from specialization and trade as long as it receives more than V of olive oil 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 crate of olive oil it exports to Croatia. Based on your answer to the last question, which of the following prices of trade (that is, price of liquor in terms of olive oil) would allow both Liechtenstein and Croatia to gain from trade? Check all that apply. [3 1 crate of olive oil per case of liquor D 16 crates of olive oil per case of liquor [j 7 crates of olive oil per case of liquor C] 2 crates of olive oil per case of liquor 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 lentils, each initially (i.e., before specialization and trade) producing 12 million pounds of almonds and 6 million pounds of lentils, as indicated by the grey stars marked with the letter A. (?) Shenandoah Denali 32 32 28 28 24 PPF 24 20 20 16 16 LENTILS (Millions of pounds) LENTILS (Millions of pounds) 12 12 PF A O 4 8 12 16 20 24 28 32 4 8 12 16 20 24 28 32 ALMONDS (Millions of pounds) ALMONDS (Millions of pounds)Shenandoah has a comparative advantage in the production of Y , while Denali has a comparative advantage in the production of V . Suppose that Shenandoah and Denali specialize in the production of the goods in which each has a comparative advantage. Af'ter specialization, the two countries can produce a total of million pounds of lentils and million pounds of almonds. 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 8 million pounds ofalmonds for 8 million pounds of lentils. 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 paint (plus symbol) on the graph to indicate Shenandoah's consumption after trade. Note: Dashed drop lines will automatically extend to both axes. Shenandoah 32 28 Consumption After Trade 24 PPF 20 16 LENTILS (Millions of pounds) 12 8 A 4 8 12 16 20 24 28 32 ALMONDS (Millions of pounds) The 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 Denali's consumption after trade.Denali 32 28 Consumption After Trade 24 20 16 12 PPF LENTILS (Millions of pounds) $A o : : . : : : : : 0 4 8 12 16 20 24 28 32 ALMONDS (Millions of pounds) True or False: Without engaging in international trade, Shenandoah and Denali would not have been able to consume at the aftertrade consumption bundles. (Hint: Base this question on the answers you previously entered on this page.) 0 True O False

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Democracy And Public Administration

Authors: Richard C Box

1st Edition

1317473213, 9781317473213

More Books

Students also viewed these Economics questions

Question

1. To gain knowledge about the way information is stored in memory.

Answered: 1 week ago