Answered: If country A uses all of its resources…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If country A uses all of its resources efficiently, it can produce a maximum of 100 units of good X. If country A uses all of its resources efficiently, it can produce a maximum of 150 units of good Y.

If country B uses all of its resources efficiently, it can produce a maximum of 75 units of good X. If country B uses all of its resources efficiently, it can produce a maximum of 125 units of good Y.

Both countries have (linear) straight line PPFs. If these countries were going to trade after specializing in their respective comparative advantages, which of the following trades would be considered to be mutually beneficial where BOTH countries gain from trade (and are strictly better off than in autarky, the situation where they both self-reliant and do not trade with one another)?

trade at a rate of 3X for 4Y

trade at a rate of 2X for 3Y

trade at a rate of 5X for 8Y

trade at a rate of 3X for 5Y

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