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:

Revenue Data

Information related to the income generated from normal business operations, such as sales of goods or services.

Competitive Price-Taker

A market participant who accepts the prevailing market price as given and has no influence over it due to the high level of competition.

Profit

The financial gain attained after subtracting total expenses from total revenues.

Competitive Price-Taker

A business that has no control over the market price and must accept the prevailing market price set by supply and demand forces.