Suppose that in a year an American worker can produce 100 shirts or 20 computers and a Chinese worker can produce 100 shirts or 10 computers.
1. For each country, graph the production possibilities frontier. Suppose that without trade the workers in each country spend half their time producing each good. Identify this point in your graphs.
2. Who has the comparative advantage in the production of shirts? What about for computers?
3. If these countries were open to trade, which country would export shirts? Give a specific numerical example and show it on your graphs. Which country would benefit from trade?
4. Explain at what price of computers (in terms of shirts) the two countries might trade.