The implementation of the postal service in the late 1800s acted as a trade liberalization in American regions or cities since individuals can communicate and send goods to each other using this service. Assume that before the arrival of postal service, Portland and San Francisco were in autarky. After the postal service arrives in both cities, they start trading with each other. Assume that Portland has 1000 workers, while San Francisco has 2000 workers. Consider two goods: wood and mining. The marginal product of labor for each nation and sector is defined by the following table.

	Portland	San Francisco
Wood	10	10
Mining	5	20

The mining sector experiences significant variations in prices. Suppose there is a mining bust (the price of mining goods falls substantially). Draw a new PPF and show how the consumption possibilities frontier of San Francisco and the indifference curve would be affected. You must show PPF, and two consumption possibilities frontier. Make sure to label indifference curve in autarky, with high mining prices, and with low mining prices.

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Before the arrival of the postal service Portland and San Francisco were in autarky meaning they did not trade with each other In autarky the production possibility frontiers PPF of both cities would ... View the full answer