Friday

March 27, 2015

March 27, 2015

Posted by **Kyle** on Monday, May 3, 2010 at 8:24pm.

11. Answer the next three questions on the basis of the following production possibilities data for Francia and Galacia. All data are in tons.

Francia production possibilities:

A B C D E

Soup 60 45 30 15 0

Nuts 0 15 30 45 60

Galacia production possibilities:

A B C D E

Soup 20 15 10 5 0

Nuts 0 15 30 45 60

(a) If trade occurs between Francia and Galacia, which nation should export what product? Why? 2 points

(b) What are the limits of the terms of trade between Francia and Galacia? 1 point

(c) Assume that prior to specialization and trade, Francia and Galacia chose production possibility “C.” Now each specializes according to comparative advantage. What will be the resulting gains from trade? Explain your answer. 2 points

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