Country A has 6 million workers and Country B has 9 million workers. Each worker in Country A can produce 3 units of corn or 2 units of fabric in a year. Each worker in Country B can produce 1 unit of corn or 2 units of fabric in a year. a) What is country A’s opportunity cost of producing one unit of corn (in terms of units of fabric given up)? What is country B’s opportunity cost of producing one unit of fabric (in terms of units of corn given up)? b) Which country has a comparative advantage in producing corn? c) If the countries do not trade, then in each country, 1/3 of the population produces fabric and 2/3 produces corn. Consider a trade proposal: A trades 2 million units of corn for 1 million units of fabric from B. Assume the two countries first observe the proposal, then adjust the fractions of their population between the two productions, and finally trade according to the proposal. Compared to the case without trade, can the proposal increase each country’s fabric and corn?
Country A has 6 million workers and Country B has 9 million workers. Each worker in Country A can produce 3 units of corn or 2 units of fabric in a year. Each worker in Country B can produce 1 unit of corn or 2 units of fabric in a year.
a) What is country A’s
b) Which country has a
c) If the countries do not trade, then in each country, 1/3 of the population produces fabric and 2/3 produces corn. Consider a trade proposal: A trades 2 million units of corn for 1 million units of fabric from B. Assume the two countries first observe the proposal, then adjust the fractions of their population between the two productions, and finally trade according to the proposal. Compared to the case without trade, can the proposal increase each country’s fabric and corn?
d) In the same setup of part c), can you propose another trade (different from that in part c) between the two countries such that each country ends up with more fabric and more corn than in the case without trade?
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