Caledonia and Scotia. If Caledonia puts all its resources in production of meat, they can produce 100 tons of meat; if puts all its resources in production of milk, they can produce 40 tons of milk; the opportunity cost of producing meat (in terms of forsaken milk) is constant. If Scotia puts all its resources in production of meat, they can produce 40 tons of meat; if puts all its resources in production of milk, they can produce 100 tons of milk; the opportunity cost of producing meat (in terms of forsaken milk) is constant.
1. If Caledonia, as an autarky, puts half of its resources in production of meat, and half in production of milk, how much meat and milk will the Caledonians consume?
2. If Scotia, as an autarky, puts half of its resources in production of meat, and half in production of milk, how much meat and milk will the Scotians consume?
3. Let us say, Caledonia specializes according to its comparative advantage to produce one good only (either meat or milk); Scotia specializes according to its comparative advantage to produce one good only (either meat or milk); and then each of them sells half of their production in exchange for the half of the  other country’s production. As the result of this specialization and trade, How much meat and milk will the Caledonians consume?
4. How much meat and milk will the Scotians consume?
5. Explain, in your own words, the infant industry argument for the trade restrictions.
6. Why do the economists doubt that the infant industry argument is a good argument for the trade restrictions? Explain in your own words.
7. Under what conditions the infant industry argument for the trade restrictions may be a good argument? Explain.

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1 Caledonia Half of the resources imply 50 Amount of meat 50 100 tons 50 tons Amount of milk 50 40 tons 20 tons 2 Scotia Half the resources 50 Amount of Meat 50 40 tons 20 tons Amount of milk 50 100 t... View the full answer