Refer to the Following Two Diagrams to Answer This Question

question 86

Essay

Refer to the following two diagrams to answer this question.

The production possibilities frontier for Autos and Chips are given above for the two countries Blib and Flib. Initially, there is no trade between Blib and Flib. As a result, Blib is maximizing societal welfare by producing and consuming at point A. Flib is maximizing societal welfare by producing and consuming at point B. The ratio of prices in Blib is given by line
while the ratio of prices in Flib is given by line
. What is true about the relative price of Autos in Blib versus Flib? Explain how it may be possible for both countries to be made better off by trading Autos for Chips.

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