Suppose that Country A can produce either 8 units of food or 4 cars in one day; while country B can produce either 12 units of food or 4 cars in one day.
a) If there is no specialization and no trade, assuming each country spends half a day in the production of food and half a day in the production of cars, what would World production be?
10 units of food and 4 cars
b) Which country has the comparative advantage in the production of cars? Which country has the comparative advantage in the production of food?
Country A has a comparative advantage in the production of cars. Country B has a comparative advantage in the production of food.
c) If these countries specialize and trade, what would World production be?
12 units of food and 4 cars.