Assume that we have a "two-country; two-good" model (Country X and Country Y). Again assume that each worker in X can produce four cars or six shoes, but each worker
in Y can produce six cars or four shoes and each country has two workers.
a) Graph the Production Possibilities Frontier for X and Y. Please label and show all
details of the graph.
b) What is the autarky relative price of cars in X and Y?
c) What is the slope of PPF for each country? And what does these slopes represents?
d) Using the information provided above, in which good does X have a comparative
advantage, and in which good does Y have a comparative advantage? Why? Please
explain the reasoning of your answer
e) What should the relative price range be in order for trade to exist between these two
countries and why?
f. Now, assume the world relative price of cars is equal to one (Pc/Ps=1). In what good
will each country specializes? Briefly explain the reasoning of your answer.
g) Please graph the after-trade equilibrium for both countries. Please use accurate
labeling and briefly explain your answer.