Question:
Recently, there has been a lot of press about the high lead content in toys made in China. This negative press can affect the foreign exchange rate between the U.S. dollar and the Chinese yuan. Using Supply and Demand as the framework, explain how the exchange rate is likely to change. What might be the economic affects of this change?
Country A can produce 100 units of Good X in a day and 40 units of Good Y, while Country B can product 50 units of Good X and 40 units of Good Y in a day. Which country should specialize in the production of Good X and which country should specialize in the production of Good Y? Why?