Question

1. The table below shows the number of labor hours required to produce a cell phone and a board foot of lumber in Estonia and Finland.

	Cell Phone	Lumber (board foot)
Estonia	20 hours	5 hours
Finland	18 hours	4 hours

1. Each country has a total of 360 labor hours to devote to the production of the two goods. Draw the production possibilities frontier for each country on two separate diagrams. Put "Cell Phone" on the horizontal axis and "Lumber" on the vertical axis. Identify intercept values.

2. Suppose each country allocates 50% of its labor hours to lumber and 50% to the cell phones. If the two countries do not trade, identify the current (cell phone, lumber) combination for each country on their respective production possibilities frontiers in part (a). Label Estonia's consumption point "E" and Finland's consumption point, "F."

3. Suppose the two countries specialize and trade. Who should produce cell phones and who should produce lumber? Explain your answer.

4. Suppose Estonia and Finland agree to trade so that in exchange for 42 board feet of lumber, the seller of lumber receives 10 cell phones. Show the consumption points after trade on each country's diagram in part (a). Label these points "Etrade" for Estonia and "Ftrade" for Finlan

Answer 1