Suppose there are two countries, Home and Foreign, that produce two goods, X and Y. The production possibilities frontiers (PPFs) for the two countries are given by:

Home: X = 100 - Y
Foreign: X = 80 - Y/2

Assume that both countries have a constant opportunity cost of production. If the two countries were to trade, what is the range of possible terms of trade that would benefit both countries? Show your calculations.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below The production possibilities frontiers PPFs for Home and Foreign are Home X 100 Y Foreign X 80 Y2 To find the opportunity cost of producing ... View the full answer