Problem
In isolation, Country A produces 12 million tons of rice and 8 million tons of beans. One ton of rice exchanges for 2 tons of beans, and there are constant costs.
(a) Construct Country A's production-possibility curve, and label your diagram.
(b) Suppose Country A now has the opportunity to trade with Country C. It can trade at the exchange ratio (terms of trade) 1R: 1B, and in equilibrium Country A consumes 10 million tons of beans.
(i) What will Country A produce after trade?
(ii) What will Country A consume after trade? Show its consumption point and its trade triangle.
(iii) What is the gain from trade (in real terms) to Country A?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.