Suppose that in an hour an American worker can produce 100 shirts or 20 computers, while a
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Question:
Suppose that in an hour an American worker can produce 100 shirts or 20 computers, while a Chinese worker can produce 100 shirts or 10 computers. If each country has 4 hours available,
a) Graph the production possibilities frontier for the United States.
b) Suppose that without trade the labour in each country spend half their time producing
each good. Identify this point on your graph.
c) If these countries were open to trade, which country would export shirts? Explain.
d) Assume that the two countries trade at a price of $5 per shirt and $30 per computer. Graph
the budget line for the United States.
e) Explain how both countries would benefit from trade.
Related Book For
Probability and Statistics
ISBN: 978-0321500465
4th edition
Authors: Morris H. DeGroot, Mark J. Schervish
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