a. additional resources become available.
b. there is an increase in the level of technology.
c. the country engages in trade.
d. All of the above.
e. Both a and b are correct.
2. Country A and country B produce wine (w) and cloth (c). The production possibility frontier for A and B can be represented by the following equations:
A: 2w + 3c = 12
B: w + c = 5
b) Consider the following combonations:
(i) 3 units of wine and 2 units of cloth,
(ii) 1 units of wine and 4 unit of cloth,
(iii) 2 units of wine and 2 unit of cloth.
Fill in the following grid for each of the above combinations.
c) What is the opportunity cost of wine in country A? What is the opportunity cost of wine in country B?
d) Who has the comparative advantage in cloth? Who has the comparative advantage in cloth wine?
e) Can there be gains from trade?
f) If both countries specialize in the production of the item they are good at, what is the maximum amount of wine and cloth that can be produced?