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Suppose Argentina (A) and Bolivia (B) only trade with each other and they both produce the same two goods: grocery (G) and fish (F). Given its resources, Argentina can produce either 2 units of grocery per day or 1 unit of fish; Bolivia can produce either 5 units of grocery or 4 units of fish.
a. Draw the production possibilities frontiers for each country on separate graphs.
b. If there were no trade, what would be the local price of fish in each country, measured in units of grocery?
c. If trade is allowed, which country will export fish and which country will export grocery (if any)?
d. What are the gains from trading a unit of fish if the international price of fish is equal to the average of the local prices in the two countries?

Microeconomics, Economics

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