QUESTION TWO. (30 Marks) The hypothetical figures in Table 2 give five alternate combinations of Cars and Copper that Japan and Zambia can produce if they fully use all factors of production at their disposal with the best technology available to them. TABLE 2: COPPER AND CAR PRODUCTION

Japan Zambia

Copper Tons	cARS	Copper Tons	Cars
520	0	1200	0
500	600	900	400
350	1100	600	650
200	1200	200	800
0	1430	0	810

(A) Using graph paper, (or a PRECISELY RULER SCALED plain paper) sketch the production possibilities schedules of Japan and Zambia.( Locate Copper on the vertical axis and Cars on the horizontal axis of each nation's graph.) [10 Marks] (B) The production possibilities schedules of the two countries appear concave, or bowed out, from the origin. Why? [2 Marks] (C) In autarky, Japan's production and consumption points along its production possibilities schedule are assumed to be 500 Cars, and 600 Copper. Draw a line tangent to Japan's autarky point and from it calculate Japan's MRT of Cars into Copper. (D) In autarky, Zambia's production and consumption points along its production possibilities schedule are assumed to be 200 Cars and 800 Copper Draw a line tangent to Zambia's autarky point (2 Marks) (E) From the line drawn in (D) above calculate Zambia's MRT of Cars into Copper. (2 Marks) (F) Based on the MRT of each nation, should the two nations specialize according to the principle of comparative advantage? [2 Marks] (G) If so, in which product should each nation specialize? [2 Marks] (H) The process of specialization in the production of Cars and Copper continues in Japan and Zambia until their relative product prices, or MRTs, become equal. With specialization, suppose the MRTs of the two nations converge at MRT = 1. Starting at Japan's autarky point, slide along its production possibilities schedule until the slope of the tangent line equals 1. This becomes Japan's production point under partial specialization. (I). How many Cars and how many Copper will Japan produce at this point? [2 Marks] (II). In like manner, determine Zambia's production point under partial specialization. How many Cars and how many Copper will Zambia produce at this point? [2 Marks] (III). For the two countries, do their combined production of Cars and Copper with partial specialization exceed their output in the absence of specialization? [2 Marks] (IV). If so, by how much? [4 Marks] Page 5 of 5 (I) With the relative product prices in each nation now in equilibrium at 1 Cars equal to 1 ton of Copper (MRT = 1), suppose 500 Copper are exchanged at this terms of trade. (I). Determine the point along the terms-of trade line at which Japan will locate after trade occurs. [2 Marks] (II). What are Japan's consumption gains from trade? (4 Marks) (III). Determine the point along the terms of-trade line at which Zambia will locate after trade occurs. [2 Marks] (IV). What are Zambia's consumption gains from trade? [4 Marks]

[TOTAL: 42 Marks]