Sun 27 Sep, 2015 04:30 pm
Hi I was wondering if anyone can explain how I can get part C) on this question. I can't seem to understand it. T_T
4) Suppose that the table below identifies the quantity of output per unit of input (a measure of productivity) for two countries and two commodities:
Large Jets Small Jets
Brasil 1 3
United States 7.5 10
a) Does one country have an absolute advantage in production over the other? How can you tell?
b) Does one country have a comparative advantage in production over the other? How can you tell?
Suppose further that the United States has 4 units of input and Brasil has 10 units of input required to produce large jets or small jets and that the US choose to allocate 60% of their inputs to producing large jets and 40% of their inputs to producing small jets while Brasil chooses to allocate 80% of inputs to producing large jets and 20% of inputs to small jets.
c) Identify each of the before trade (BT) points on your ppf graphs for Brasil and the US.
Finally, suppose that Brasil and the US, through a process of intense negotiations, determine that the terms of trade will be 2. That is, 1 unit of large jets will exchange for 2 units of small jets. Further, suppose that the USA decides to export 10 units of large jets to Brasil.
d) Identify each of the after trade (AT) points on your cpf graphs (constructed in the same space as your ppf graphs) for both Brasil and the US.
e) Identify the gains from trade (if any) for each country.
f) Describe any in-country distributional effects (on incomes) as a result of engaging in international trade.