describe the limits of terms of trade and find out the gains from trade.
Answer the next three problems on the basis of the following production possibilies data for Francia and Galacia. All data are in tons.
Francia production possibilities:
|
A
|
B
|
C
|
D
|
E
|
Soup
|
60
|
45
|
30
|
15
|
0
|
Nuts
|
0
|
15
|
30
|
45
|
60
|
Galacia production possibilities:
|
A
|
B
|
C
|
D
|
E
|
Soup
|
20
|
15
|
10
|
5
|
0
|
Nuts
|
0
|
15
|
30
|
45
|
60
|
a) If trade occurs between Francia and Galacia, which nation should export what product? Why?
b) Illustrate what are the limits of the terms of trade between Francia?
c) Assume that prior to specialization and trade, Francia and Galacia chose production possibility "C". Now each specializes according to comparative advantage. What will be the resulting gain from trade? describe.