Assume that Canada and Japan each have 1,000 production units available to them. With each unit, Canada is able to produce either 8 bicycles or 2 books, while Japan can produce 3 bicycles or 6 books. When no trade takes place, Canada allocates 700 units to bicycles and 300 to books, and Japan allocates 400 units to bicycles and 600 to books.
Create a table showing total production for the two countries with no trade.
Create a table that assumes total specialization. What is the effect on total production?
What are the two extreme (relative) prices that are possible for trade in this situation and whom does each extreme favor? (Note: You do not need to create a table showing the entire trade scenario. Simply identify the price ratios, their sources, and who benefits from them.)