Question
The only two countries in the world, Alpha and Omega, face the following production possibilities frontiers. A.(4 points) suppose that each country decides to specialize
The only two countries in the world, Alpha and Omega, face the following production possibilities frontiers.
A.(4 points) suppose that each country decides to specialize in the good in which each has a comparative advantage. By specializing, what is the total world production of each product now? Solve for comparative advantage, (e.g., show who has comparative advantage and in what products), specialization and trade. Show your work.
B.(3 points) Assuming each country fully specializes in the good in which it has comparative advantage. If each country decides to trade 100 units of popcorn for 100 units of peanuts, show on the graphs the gain each country would receive from trade. Label these points D.
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