Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Two countries, Romani and Slovakia, can each produce two items: wheat and textiles. Romania can produce either 100 tons of wheat and no textiles,
Two countries, Romani and Slovakia, can each produce two items: wheat and textiles. Romania can produce either 100 tons of wheat and no textiles, or 60 tons of textiles but no wheat. Slovakia can produce a maximum of 50 tons of wheat (when it produces no textiles). Slovakia's opportunity cost of wheat is 1.6 tons of textiles. Chart on two separate graphs with appropriately labelled axes, the production possibilities curves (PPC) for the two countries. Assume first conditions of autarky: a) If Romania wants to consume 70 tons of wheat, what quantitiy of textiles will it produce (and consume)? b) If Slovakia wants to consume (and produce) and equal tonnage of wheat and textiles, how much of each will it produce (and consume)? Now assume that the two countries agree to trade at a trade price of 1 ton of wheat to one ton of textiles. c) Which country should specialize in wheat and which in textiles ? d) If Romania wants to consume 70 tons of wheat, what quantity of textiles can it consume ? e) If Slovakia wants to consume 30 tons of wheat, what quantity of textiles can it consume ? How would your answers to c, d,e change if the trade price was instead 1.3 tons of wheat to 1 ton of textiles ?
Step by Step Solution
★★★★★
3.49 Rating (162 Votes )
There are 3 Steps involved in it
Step: 1
Autarky means that both countries produce and consume goods without engaging in international trade Given information Romanias production possibilities 100 tons of wheat and no textiles 60 tons of tex...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started