Q. Assume there are 2 products: clothing as well as soda. Both Brazil plus the US produce each product. Brazil manufactures 100,000 units of clothing per year as well as 50,000 cans of soda. The United States manufactures 65,000 units of clothing per year as well as 250,000 cans of soda. Also assume that costs remain constant.
•Illustrate what would be the production possibility frontiers for Brazil as well as the United States?
Without trade, the United States manufactures 45,000 units of clothing as well as 150,000 cans of soda.
Without trade, Brazil manufactures 75,000 units of clothing as well as 30,000 cans of soda.
Denote these points on each other's construction possibility frontier.
• Illustrate what is the marginal transformation rate for each country? Should the two countries specialize as well as trade?
If so, who has the comparative advantage in what product?
Once they specialize, how much does output increase?
• Illustrate what are the terms of trade if the United States trades 1 can of soda for 5 units of clothing?
Are the consumers in each country better off?
• Illustrate what is the labor-intensive good?
• Illustrate what is the labor-abundant country?
• Illustrate what is the capital-abundant country?
• Illustrate could trade help reduce poverty in Brazil as well as other developing countries?
•Clarify how do product as well as factor costs as well as wages eventually equalize between the two countries?