Reference no: EM131398977
GIVEN: The maximum amount of steel or aluminum that Canada and France can produce if they fully use all the factors of production at their disposal with the best technology available to them is shown here: Canada had 500 in steel(tons), France has 1200 in steel (tons), Canada has 1500 in aluminum (tons), France has 800 in Aluminum (tons)
Please use the information given in the problem but instead of answering the questions in the book, answer the questions below:
1. Calculate the Opportunity Costs of producing Steel and Aluminum in the two countries
2. Which country has an absolute advantage in Steel? in Aluminum? Why?
3. Which country has a comparative advantage in Steel? in Aluminum? Why?
4. Draw PPFs and the demand diagonals for both countries. Show the production and consumption points under autarky in each country.
5. Show the production points in each country when there is free trade. Is specialization complete or partial?
6. Does specialization yields increases in global output of each good (gains)? By how much?
7. Draw the terms of trade line for each country. Determine precisely the quantities of the two goods consumed under free trade in both countries. They are not given to you but you need to figure them out given that 500 tons of steel are traded for 500 tons of aluminum (tt = 1)
8. Calculate the gains in consumption (increases in the consumption of each good in both countries). Which country gains the most from trading? Why is it so?
9. Draw the trade triangles and show exports and imports for both countries.
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