4. Assume a two-country two-good two-input model. Let the countries in the model be Vietnam and Myanmar and the goods be shirts and natural gas. The two factors of production are labor and land. Further, Vietnam is labor-abundant and shirts production is labor-intensive. Suppose, in the absence of trade, Vietnam operates at a point on its production-possibility curve where it produces and consumes 20 units of shirts and 25 units of natural gas. Once it engages in free trade, the international price of one unit of natural gas is .8 units of a shirt. In response to the opening of trade, Vietnam moves along its production-possibility curve to a new point where it produces 100 units of shirts and 10 units of natural gas. Assume that with free trade, Vietnam chooses to consume 52 units of shirts and chooses to trade all of its remaining surplus of shirts. a. Demonstrate the gains to trade for Vietnam.
4.
Assume a two-country two-good two-input model. Let the countries in the model be Vietnam and
Myanmar and the goods be shirts and natural gas. The two factors of production are labor and land.
Further, Vietnam is labor-abundant and shirts production is labor-intensive. Suppose, in the absence
of trade, Vietnam operates at a point on its production-possibility curve where it produces and
consumes 20 units of shirts and 25 units of natural gas. Once it engages in free trade, the international
price of one unit of natural gas is .8 units of a shirt. In response to the opening of trade, Vietnam
moves along its production-possibility curve to a new point where it produces 100 units of shirts and
10 units of natural gas. Assume that with free trade, Vietnam chooses to consume 52 units of shirts
and chooses to trade all of its remaining surplus of shirts.
a. Demonstrate the gains to trade for Vietnam.
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