Suppose that in a year an American worker can produce 100 shirts or 20 computers, while a
Question:
Suppose that in a year an American worker can produce 100 shirts or 20 computers, while a Chinese worker can produce 100 shirts or 10 computers.
a. Graph the production possibilities curve for the two countries. Suppose that without trade the workers in each country spend half their time producing each good. Identify this point in your graph.
b. If these countries were open to trade, which country would export shirts? Give a specific numerical example and show it on your graph. Which country would benefit from trade? Explain.
c. Explain at what price of computers (in terms of shirts) the two countries might trade.
d. Suppose that China catches up with American productivity so that a Chinese worker can produce 100 shirts or 20 computers.
What pattern of trade would you predict now? How does this advance in Chinese productivity affect the economic well-being of the citizens of the two countries?
Step by Step Answer:
a The production possibilities frontiers for the two countries are shown in Figure If without trade a US worker spends half of his time producing each ...View the full answer
