Question

In: Economics

3. The following table represents increasing cost production possibilities for the US and the rest of...

3. The following table represents increasing cost production possibilities for the US and the rest of the world (ROW):

Possibilities Curve Possibilities Curve

Wheat Cloth Wheat Cloth

0 120 0 200

40 116 40 192

80 100 80 180

120 76 120 160

160 40 160 120

200 0 180 0

Using indifference curves and production possibilities curves, determine

A. equilibrium relative prices at which production and consumption take place before trade, for both the US and ROW.

B. What is the range of prices within which trade would be mutually beneficial for both the US and ROW?

C. After specializing in production, determine the points at which consumption takes place if the US and ROW exchange 20 bushels of wheat for 20 yards of cloth, i.e. international relative price =1.

D. Derive the offer curves for the US and ROW.

E. Use supply and demand curves to examine the cloth market before and after trade in both the US and ROW.

Expert Solution

Rahul Sunny answered 2 years ago

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