1. This question asks you (in the context of the automobile market of the previous question) to compare the before situation in question 3a with an after situation in which the market price is 20 (and there are foreign sellers in the market) and the U.S. makers sell 12.
a. How much better off or worse off (in dollars per year) are US car purchasers as a consequence of the foreign supply?
b. How much better off or worse off (in dollars per year) are US car manufacturers as a consequence of the foreign supply?
2. Joe and Mary can each produce salads and smoothies. He can make 6 smoothies per hour or 30 salads per hour. She can make 30 smoothies per hour or 30 salads per hour.
a. Make a graph with salads per hour on the vertical axis and smoothies per hour on the horizontal axis. Show and label Joe’s production possibility curve. He is currently making 5 smoothies and 5 salads. Label this point J. What is his opportunity cost of one more smoothie?
b. Make another graph with salads per hour on the vertical axis and smoothies per hour on the horizontal axis. Show and label Mary’s production possibility curve. She is currently making 15 salads and 15 smoothies. Label this point M. What is her opportunity cost of one more smoothie?
c. Will there be gains from trade? If not, why not? If so, what are the gains (in terms of increased salads and increased smoothies)? Here as in every question show your work and explain.