Problem
Suppose Togo can produce 120 million bushels of wheat if it uses all of its productive resources in the wheat industry, or 80 million yards of cloth if it uses all of its resources in the cloth industry. Use a diagram to illustrate your answers to the following questions. Label the diagram and explain in words.
(a) Assuming constant opportunity costs, draw Togo's production-possibility curve.
(b) With no trade, suppose Togo's consumers choose to consume 70 million bushels of wheat. How much cloth will Togo then be able to produce?
(c) What is the real exchange ratio (terms of trade) in Togo?
(d) Now suppose that Togo has the opportunity to engage in foreign trade and that the world terms-of-trade ratio is 1W:1C. What will happen to the allocation of resources in Togo? Explain why.
(e) If Togo consumes 75 million bushels of wheat, after trade begins, how much cloth will it consume?
(f) What is the gain from trade to Togo?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.