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Suppose 2 separate economies can produce either Boats or Cars according to the following table. Assume each economy has a linear PPC (for mathematical ease).
Suppose 2 separate economies can produce either Boats or Cars according to the following table. Assume each economy has a linear PPC (for mathematical ease). All Boats (with no Cars) Waterworld 50 Robotland 40 All Cars (with no Boats) Waterworld 25 Robotland 40 a. If there is no trade between these economies, Waterworld will produce 20 Boats and Robotland will produce 25 Boats. Assuming each produces on their PPC, how many Cars would each economy produce? Graph each economy's PPC and this "autarky" combination. b. If these economies were to trade with each other, which would have comparative advantage in Boat production? How about Car production? Show the work to prove your answer. c. If each economy specializes in their comparative advantage good, state a mutually beneficial trade that would allow BOTH economies to end up with more of BOTH goods than they were able to achieve in the answer to part a
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