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Specialization and trade between these two countries

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Suppose Big country can produce 80 units of X by using all its resources to produce X or 60 units of Y devoting all its resources to Y. Comparable figures for small Nation are 60 units of X and 60 units of Y. Assuming constant costs, in which product should each nation specialize?

Explain why. What are the the limits of the terms of trade between these two countries? How would rising cost (rather than constant costs) affect the extent of specialization and trade between these two countries?

Reference no: EM13316384

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