Answer Happy

Consider a world with two goods, pizza and beer, and two countries, America and Belgium. The population of country A is 10 while the population of country B is 10. Each person is endowed with one unit of labor. A unit of labor can produce pizza and beer in each country according to the following table: Country Beer Pizza America 4 4 Belgium 6 2 Suppose that each person wants to spend half of their income on each good and let prices in the world be in units of beer so the price of a beer in each country is 1. (a) Suppose that there is no trade. What is per capita consumption of each good in each country? (b) What are the prices of pizza in each country? Who has a comparative advantage in producing beer? In pizza? (c) Now suppose that the world opens to free trade. If countries fully specialize according to their comparative advantage what is the world production of beer and pizza? With this level of world production what should the price of a pizza be in terms of beer? (d) With the patterns of production in each part what are the wages in each country in terms of beer? What is per capital consumption of beer and pizza in each country? How does this differ from consumption under autarky?
Consider a world with two goods, pizza and beer, and two countries, Italy and Germany. The population of Italy is 10 while the population of Germany is 20. Each person is endowed with one unit of labor. A unit of labor can produce pizza and beer in each country according to the following table: Beer Pizza Country Italy Germany 2 8 4 2 Suppose that each person wants to spend half of their income on each good and let prices in the world be in units of beer so the price of a beer in each country is 1. (a) Suppose that there is no trade. What is per capita consumption of each good in each country? (b) What are the prices of pizza in each country? Who has a comparative advantage in producing beer? In pizza? (e) Now suppose that the world opens to free trade. If countries fully specialize according to their comparative advantage what is the world production of beer and pizza? With this level of world production what should the price of a pizza be in terms of beer? What is per capita consumption of beer and pizza in each country? How does this differ from consumption under autarky?
1. Let's examine a trade agreement between U.S and Mexico. We will examine a simple two good case, brooms and microchips. Each country has 10 workers who can produce either microchips or brooms. A worker in U.S can produce 9 microchips a day or 1 broom a day. A worker in Mexico can produce 1 microchip or 9 brooms a day. This can be summarize in the following table: Output per worker U.S. Mexico 9 1 Microchips Brooms 1 9 a) Draw the production possibilities frontier (PPF) of microchips and brooms for U.S. b) Draw the production possibilities frontier (PPF) of microchips and brooms for Mexico.