Question 1. Country X's production possibilities frontier is given by the following table:
Combination Health Care All Other Goods
A 0 200
B 50 180
C 100 140
D 150 80
E 200 0
And Country Y's production possibilities curve is given by:
Combination Health Care All Other Goods
A 0 100
B 40 90
C 80 72
D 120 40
E 160 0
Further assume that each country is currently producing and consuming at Point C on its production possibilities frontier.
a. Calculate the opportunity cost for providing health care in terms of how much of "all other goods" needs to be given up for each of combinations given above for both Country X and Country Y.
b. Given the current production and consumption levels for each country, which country has a comparative advantage in providing health care? Which has a comparative advantage in producing all other goods?
c. If trade takes place, what is the direction of trade? Which country exports health care and imports all other goods? Is there a limit to how much specialization takes place?