Question
Two countries are capable of producing corn and blankets. Let's assume they can produce the two goods using labor alone, and that each country has
Two countries are capable of producing corn and blankets. Let's assume they can produce the two goods using labor alone, and that each country has at its disposal 100 units of labor. In Country A, the production of a ton of corn requires 10 units of labor per year, and the production of ton of blankets requires 5 units of labor per year. In Country B, the production of a ton of corn requires 6.25 units of labor per year, and the production of ton of blankets requires 10 units of labor per year. (i) Draw the production possibilities frontiers for the two countries, and the global production possibilities frontier for the combined activity of the two economies; I recommend using the PowerPoint drawing function for this. (ii) Identify the comparative advantage of each country, explaining how you arrived at your answer. (iii) What are the upper and lower bounds for the price of corn for trade to be beneficial to both countries?
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