Question

The table below reflects the production possibilities for two countries. Assume constant costs.

	Country V	Country X
Sweaters	100	500
Clay Pots	30	500

1)   Graph out each countries production possibilities curve (PPF)

2) Calculate the Opportunity Cost of production for each country

3) Determine which country has a comparative advantage in each good.

4) Does it make any sense for Country X to trade with Country V?

5) Fill in the blanks

A clay pot internally costs country V _____ sweaters. If they trade the want the cost of clay pot to be _______ than ____ sweaters.

A clay pot trades internally in Country X for ____ sweaters. If they trade externally they would want ____ than ____ sweater.

Therefore the terms of trade could be ____ clay pot(s) = _____ sweater(s)

6) Explain using numbers and the graphs you drew in Part D question one how trade is beneficial for each country.

Answer 1

Sweater SO 100 * 30 4) e d) Too lay pots opp cost of claypots for conry = 3.33 un of Clay pols for conry x=1 Comery v will produce Sweater & etry & will produa leay pots Yes both can be made better off lay pet cost corby v = 3.33 Sweaters 26 they bade, cost to be less than 3.33 surealey Clay pot backes = 1 seveater externally they would want more than I sweaks. tem of bade sweate <i claypot <3.33sweede 5)