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Determine the potential world price

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Reference no: EM133132616

Problem:

Textile

Computer

USA

3

4

CHINA 

1

1

Assume there are two countries, China and the US, and two products, textiles and computers. Assume the production coefficients in the above table, i.e., that the U.S. has an absolute advantage in both products, but that China has a comparative advantage in textiles. Both countries are populated with 100 workers. In a neatly drawn figure, depict the production possibility frontier for each country (with textiles on the y-axis) as well as a potential world price, and show how each country can gain from trade.

* I have done the PPF graph and need help as to determine the potential world price. Also grateful if you can explain me how each country can gain from trade. 

Much appreciated. 

Reference no: EM133132616

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