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Suppose there are two countries, Alpha and Omega. Both countries can only produce and consume two goods, potato chips and computer chips. Also assume that
Suppose there are two countries, Alpha and Omega. Both countries can only produce and consume two goods, potato chips and computer chips. Also assume that both countries have equal opportunity cost of producing both goods no matter how much of each good they produce, i.e. their Production Possibility Frontiers are straight lines. For clarification, they're opportunity cost of producing each good are not equal to the other country, but is a constant, i.e. does not increase or decrease the more they produce of any good. If Alpha devotes all of its resources to producing only potato chips, they can produce 15,000 pounds of potato chips. If they, instead, devote all of their resources to producing only computer chips, they can produce 120,000 computer chips. If Omega devotes all of its resources to producing only potato chips, they can produce 12,000 lbs. of potato chips. If they, instead, devote all of their resources to producing only computer chips, they can produce 72,000 computer chips
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