explore production and trade

Exploring Production and Trade

2. Suppose the two countries of Purland and Rurland produce only two commodities and the amounts that they can produce are shown in the production-possibilities table below. Each table has one entry missing. What is the missing entry assuming that the opportunity costs of Chocolate and Textiles are constant? Fill in the blanks and then answer the remaining questions. When you are finished, click the "Check Answers" buttons and see how you did.

Purland
Rurland
Without trade, the best each country could do would be:

Chocolate Textiles
. . .
Chocolate Textiles

30 0
. . .
60 0

20 20
. . .
40

15 30
. . .
30 15

10
. . .
20 20

0 60
. . .
0 30

If we unite these two countries and find their merged production-possibilities frontier, what do we get? Complete the combined production-possibilities table below.

Chocolate	Textiles	If they specialized and traded, each country could have which of the following bundles?
90	0
80
70
60
40
20
0	90

3. Jack can fetch 4 pails of water an hour or pick four pecks of peppers. Jill can fetch 2 pails of water an hour or pick three pecks of peppers. Each works alone for four hours. Derive their production-possibilities frontiers:

Jack Jill

Water Peppers Water Peppers

16 __ __ __

__ __ __ __

__ __ __ __

__ __ __ __

0 __ __ __

Jack wants to consume four pails of water every four hours. How many peppers can he consume? Jill also wants four pails of water every four hours. How many peppers can she consume? Explain how they can specialize (only partially for one of them) and trade and both be better off.
Are they equally well off before trade? Are they equally well off after trade? Do the rich get richer and the poor get poorer, or do both the rich and the poor get richer?
Reflect on the implications of this example and the notion of comparative advantage. Does they say that only the best and brightest are useful in society, or that even people who are not very productive can be useful parts of society?

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Purland			Rurland		Without trade, the best each country could do would be:
Chocolate	Textiles	. . .	Chocolate	Textiles
30	0	. . .	60	0
20	20	. . .	40
15	30	. . .	30	15
10		. . .	20	20
0	60	. . .	0	30

Jack		Jill
Water	Peppers	Water	Peppers
16	__	__	__
__	__	__	__
__	__	__	__
__	__	__	__
0	__	__	__