Question

For EACH of these tables, do the following, assuming that both countries are initially in autarky....

For EACH of these tables, do the following, assuming that both countries are initially in autarky. Note: Show ALL of your work!

a. For each good, identify which country has an absolute advantage.

b. For each country, calculate the opportunity cost of producing one more unit of cars.

c. For each good, identify which country has a comparative advantage.

d. EXPLAIN how international economic forces will influence the different businesses in each country when trade is allowed, stating clearly what will happen to production and employment in each industry.

e. Calculate what would happen to production levels in each country and for the two countries combined, if each country’s production of its comparative disadvantage good fell by 10 units and the relevant resources were then transferred to increase production of the country’s comparative advantage good.

Good (Cars) Good (Computers)
Country A 5 4
Country B 5 10
Business   Economics   
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