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  • What would be the production possibility frontiers for Brazil and the United States?
    • Without trade, the United States produces 45,000 units of clothing and 150,000 cans of soda.
    • Without trade, Brazil produces 75,000 units of clothing and 30,000 cans of soda.
    • Denote these points on each other’s production possibility frontier.
  • What is the marginal transformation rate for each country?
    • Should the two countries specialize and trade?
    • If so, who has the comparative advantage in what product?
    • Once they specialize, how much does output increase?
  • What are the terms of trade if the United States trades 1 can of soda for 5 units of clothing?
    • Are the consumers in each country better off?
  • What is the labor-intensive good?
  • What is the labor-abundant country?
  • What is the capital-abundant country?
  • Could trade help reduce poverty in Brazil and other developing countries?
  • How do product and factor prices and wages eventually equalize between the two countries?

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