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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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