Illustrate the purpose of this optional homework

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Reference no: EM1354494

The purpose of this optional homework is to learn how specialization and trade benefit all trading parties, even those that are absolutely more efficient producers of particular goods or services compared to the absolutely less efficient ones. Before working on the assignment please make the following assumptions:

1. Production possibilities for both states are given monthly (e.g. CA can produce either 7 million CPUs or 5 million software units but not both, and the same is true for WA);

2. Both goods are complimentary (one can't be used without the other) and of equal worth; that is why

3. Both states must end up with equal amount of both goods at the end of the year;

4. Trade exchange rate must be fair (1 CPU for 1 unit of software);

5. As absolutely more efficient producer of both goods, CA will specialize in CPUs but also has to allocate some time during the year to software production.

Reference no: EM1354494

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