Consider the following table about the technology of producing cars and TVs, where labor is the only factor of production:
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1 Car |
1 TV |
| Country 1 |
20 labor |
5 labor |
| Country 2 |
50 labor |
25 labor |
(a) Country 1 has a comparative advantage in :
(b) Country 2 has a comparative advantage in :
(c) Assume that each country has 1000 workers, draw the production possibility frontier of each country?
(d) The trade price:
(e) Assume that the autarky production is when both countries devote half of their labor to produce each good. Now, suppose that country 1 devotes 40% of their labor to produce cars and 60% to produce TVs, while country 2 devotes 75% of their labor to produce cars and 25% to produce TVs, and then they decide to trade such that the number of cars available for consumption in both countries after trade is the same as in autarky. Complete the following table:
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Country 1
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Country 2
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Cars
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TVs
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Cars
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TVs
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Autarky
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Production & Consumption
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Trade
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Production
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Trade
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Consumption
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Gains from Trade
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