Suppose that in a year an American worker can produce 100 shirts or 20
computers while a Chinese worker can produce 100 shirts or 10 computers. a.
Graph the production possibilities curve for the
two countries. Suppose that without trade the workers in each country spend
half their time producing each good. Identity this point in your graph. b.
If
these countries were open to trade which country would export shirts? Give a
specific numerical example and show it on your graph. Which country would
benefit from trade? Explain.c.
Explain
at what price of computers (in terms of shirts) the two countries might trade. d.
Suppose
that China catches up with American productivity so that a Chinese worker can
produce 100 shirts or 20 computers. What pattern of trade would you predict
now? How does this advance in Chinese productivity affect the economic
well-being of the citizens of the two countries?