. questions 6, 7 and 8 please Suppose that the United States can produce either:

Question

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questions 6, 7 and 8 please

Suppose that the United States can produce either: 10 units of computers, 10 units of goat, or any linear combination of the two. New Zealand can produce either 5 computers, 20 units of goat, or any linear combination of the two. 1. Draw each countries production possibility frontier. Assume for now that each country is in Autarky. Measure computer production on the vertical axis. 2. If the U.S. initially consumes 5 computers, how many goats does it initially consume? How many goats and computers does the U.S. initially produce? 3. If New Zealand initially consumes 4 computers, how many goats will it consume? How many computers and goats does New Zealand initially produce? 4. Wh ich goods does the U.S. have a comparative and absolute advantage in producing? producing? 6. Suppose that the two countries trade and that the Terms of Trade (TOT) is: 1 computer for 2 goats. How many computers and goats should the U.S. produce? What about New Zealand? 7. Suppose that the U.S. sends New Zealand 5 computers. How many computers and goats 8. Suppose that the U.S. sends New Zealand 5 computers. How many computers and goats will the U.S. consume? will New Zealand consume?

Explanation / Answer

6) According to the above info USA can produce 10 computer or 10 goats . New Zealand can produce 5 computer or 20 goats

According TOT 1 computer for 2 goats. So USA has absolute advantage of producing 10 computers so that it can get goats for exchange. So USA produce 10 computers and does not produce any goats. In the same way New Zealand has absolute advantage of producing goats , So New Zealand produces 20 goats and does not produce any computers.

7) If USA sends New Zealand 5 computers out of 10 computers in exchange for goats.USA exchange 1 computer for 2 goats , So USA get 10 goats as an exchange for 5 computer

USA will consume 5 computer which are left from its production after its exchange with New Zealand and 10 goats which it got as an exchange for computer from New Zealand

So USA consumes 5 computers and 10 goats

8) If USA sends New Zealand 5 computer out of 10 computers in exchange for goats. USA exchange 1 computer for 2 goats. So USA gets 10 goats as an exchange for computers

So New Zealand will consume 5 computers which it got USA and 10 goats which are left from its production after exchange with USA for computers.

So New Zealand consumes 5 computers and 10 goats.

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