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Production Possibility Frontiers and Autarky Levels of Output

 
 
Reply Thu 17 Oct, 2013 09:57 am
I am struggling with this homework problem. I can determine the absolute and comparative advantage. But I'm really struggling with creating the Production Possibility Frontiers.

The country of Uncoordinated requires 5 units of labor to produce one unit of corn and 10 units of labor to produce one unit of housing. Uncoordinated has 100 total units of labor available. Uncoordinated has Leontief preferences (indifference curves) with the bend at equal shares of
housing and corn.

The country of Gifted requires 1 unit of labor to produce one unit of corn and 1 unit of labor to produce one unit of housing. Gifted has 10 units of labor available and Leontief preferences (indifference curves) with the bend at 2 units of corn for every unit of housing.

a)Find the autarky levels of output for both countries.

b)Identify which country has the comparative advantage
in the production of each of the goods.

c)Identify which country has the absolute advantage in the production of each of the goods.

d)Develop a scheme of international trade that leaves both countries better off. In other words, show how specialization and trade can generate higher levels of consumption.

e)Is the scheme developed in (d) the only possible welfare improving trade outcome? Why or why not?
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