PRODUCTION GAINS NET BEFORE SPECIALIZATION AND TRADE AFTER SPECIALIZATION AND TRADE CLOTH AUTOS AUTOS CLOTH AUTOS CLOTH COUNTRY A COUNTRY B COMBINED CONSUMPTION GAINS NET BEFORE SPECIALIZATION AND TRADE AFTER SPECIALIZATION AND TRADE CLOTH AUTOS CLOTH AUTOS AUTOS CLOTH COUNTRY A COUNTRY B "COMBINED NAME ECONOMICS 305 INTERNATIONAL TRADE AND INVESTMENT ASSIGNMENT 3 Answer the following questions based on the production possibilities information shown on the following graph. 1. Draw the production possibilities curve for each country on the attached graph. 2. Calculate the trade-off (marginal rate of transformation or MRT) between autos and cloth for each country. Show your calculations. 3. Calculate the relative cost (price) ration of autos to cloth Pp/Pc for each country. Show your calculations. 4. Which country has the absolute advantage in autos and which country has the absolute advantage in cloth? Explain your answer. 5. Which country has the comparative advantage in autos and which country has the comparative advantage in cloth? Explain your answer. 6. Suppose the terms of trade (TOT) is 1 auto = 10 cloth. In which commodity will each country specialize? 7. Suppose 6 million autos are exchanged for 60 million cloth. Show on the diagram the terms of trade (consumption possibilities line) and the trade triangles for each country. 8. Suppose under autarky, country A produced and consumed 12 autoe and 48 cloth while country B produced and consumed 4 autos and 20 cloth. On the third page fill in the table showing the production and consumption gains arising from specialization and trade based on comparative advantage GIVEN CONSTANT OPPORTUNITY COSTS AND WITH ITS RESOURCES FULLY AND EFFICIENTLY EMPLOYED COUNTRY A CAN PRODUCE EITHER: 20 MILLION AUTOS OR 120 MILLION YARDS OF CLOTH AS WELL AS COMBINATIONS OF BOTH GOODS WHICH LE BETWEEN THESE TWO VALUES SUCH AS 20 10 MILLION AUTOS AND 60 MILLION YARDS OF CLOTH UNDER SIMILAR ASSUMPTIONS COUNTRY CAN PRODUCE EITHER: 5 MILLION AUTOS OR 100 MILLION YARDS OF CLOTH 15 AS WELL AS COMBINATIONS OF BOTH GOODS WHICH LE BETWEEN THESE TWO VALUES SUCH AS: 3 MILLION AUTOS AND 40 MILLION YARDS OF CLOTH MILLIONS OF AUTOS 10- sb 150 200 100 MILLIONS OF YARDS OF CLOTH