Question

France- Paper (1) Pens (5) Labor (100)

Mexico- Paper (0.25) Pens (0.5). Labor (1000)

1. Identify the pattern of comparative advantage (CA). Provide a table of opportunity costs and show how you determined the pattern of comparative advantage.

2. Graph the PPF for each nation with paper on the horizontal axis and pens on the vertical axis. Calculate and state the X intercept, Y intercept, and the slope of each PPF. What range of P (paper) / P (pens) will allow for international trade to take place? Using this information graph the RS of paper to pens for each nation with P(paper) / P(pens) on the vertical axis and paper/pens on the horizontal axis.

3. Derive the world relative supply curve for paper and include a WRD curve.

4. Finally, graph the CPF for each nation in the graph of the nation’s ppf. Show the trade equilibrium by identifying the production point, the consumption point, and the exports and imports of each nation. Do both countries gain from trade?

Answer 1

Teade equilibrium would be where WRD and WR S cuivres intersects hence, this will make home to produce only baper sund preign its produce only bens. The price of paper relative to that of the peu would be between 0.2 ando.s. Now consumption possibilities of the two countries, Home - Foreign 2009 - 400 1oo Paper as paker Now, both the countries gain from the trade because as shown in the diagrany above, the older consumption possibilities before teade ie the shaded region is fully rovered under the new consumption I possibilities, hope you found this helpful. Thank you *

와 suppose price of papu is px and of pen is Now, il PX L opportunity cost of producing paper pr only pen will be produced from this we get is lx 20.20 , both countries will produce Py pene then pen • is fx 70.20 but <0.50 home can produce either of the thoo but foreign will produce pen only. 50 both countries will produce paper This gives was the relative supply curre of paper as, fetstive 0.50 CT WRS. WRD World rektive supply of paper 2000

Home opportunity pen = + cost of paper in terms of = 0.20 pers. Foreign Opportunity cost of paper in terms of pin = a 2 = 0.50 pens . It is costly its produce paper in oreign as compared to home because for each unit of paper produced peeign has to forge as unit of pen's pusduction while home has to jogo 0.20 of fen's production. I Hence, home has a comparitive advantage in making paper Because labour is the only factor of production, so diminishing marginal retimes won't come into play and hence Ppp of both the countries would be downward sloping straight lines. Home, Maximum productiction of pens = 100 - 20 units Maximus feesduction I Paper Doubounib.

20 Slope = opportunity cost of paper for pen = 0.20 - simitarly Too pr Paper preign, Rosu Slope - opportunity cost of paper for pen=0-50 yooupaper -