Consider the two hypothetical nations of Golikia and Fretonia. Suppose they both produce only two goods, robot vacuum cleaners and catnip toys. Each country faces a trade-off when producing the two goods. The following graph displays the respective production possibilities frontiers (PPF) for Golikia and Fretonia.

If the two nations operate in autarky, which of the black points (plus symbol) are attainable for Golikia?Check all that apply.

A. Point A

B. Point B

C. Point C

D. Point D

Suppose the two nations decide to trade with each other at a rate of one robot vacuum cleaner per catnip toy (1:1).On the previous graph, use the green line (triangle symbol) to represent the terms of trade to help you find your answer to the following question. You will not be graded on where you place the line on the graph.

Which of the grey points (star symbol) that were notattainable by either country in autarky are attainable once the countries agree to trade, holding all else constant?Check all that apply.

A. Point W

B. Point X

C. Point Y

D. Point Z

Suppose Fretonia and Golikia engage in trade, and both nations desire the same post-trade consumption bundle. (Note: Assume both countries will not waste any resources.)

Fretonia will (export or import) catnip toys.

Transcribed Image Text:

CATNIP TOYS (Thousands) 50 45 40 35 30 25 20 15 - 10 5 0 Golikia's PPF 0 5 + A B N x W D +5 Fretonia's PPF 10 15 20 25 30 35 40 ROBOT VACUUM CLEANERS (Thousands) 45 50 A Terms of Trade CATNIP TOYS (Thousands) 50 45 40 35 30 25 20 15 - 10 5 0 Golikia's PPF 0 5 + A B N x W D +5 Fretonia's PPF 10 15 20 25 30 35 40 ROBOT VACUUM CLEANERS (Thousands) 45 50 A Terms of Trade