The Only Two Countries in the World, Alpha and Omega

question 144

Essay

The only two countries in the world, Alpha and Omega, face the production possibilities frontiers shown.
a. Assume that each country decides to use half of its resources in the production of each good. Show these points on the graphs for each country as point A.
b. If these countries choose not to trade, what will be the total world production of popcorn and peanuts?
c. Now suppose that each country decides to specialise in the good in which each has a comparative advantage. What is the total world production of each product now?
d. If each country decides to trade 100 units of popcorn for 100 units of peanuts, show on the graphs the gain each country will receive from trade. Label these points B.
A.
b. If these countries choose not to trade, what will be the total world production of popcorn and peanuts?
c. Now suppose that each country decides to specialise in the good in which each has a comparative advantage. What is the total world production of each product now?
d. If each country decides to trade 100 units of popcorn for 100 units of peanuts, show on the graphs the gain each country will receive from trade. Label these points
B.

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Definitions:

Asset Impairment Test

A procedure carried out to determine if an asset's carrying amount is not recoverable and exceeds its fair value, necessitating a write-down to its fair value.

Deferred Tax Asset

A tax benefit stemming from temporary differences between accounting and tax calculations, which will result in deductible amounts in future tax payments.

Intraperiod Tax Allocation

The apportionment of tax expense or benefit among the different parts of an entity’s financial statements, such as continuing operations and discontinued operations, within the same fiscal period.

Accelerated Depreciation

A method of depreciation in which an asset loses value at a faster rate in the initial years of its life, often used to reflect higher usage or obsolescence.