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Question: the only two countries in the world alpha and omega...

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The only two countries in the world, Alpha and Omega, face the following production possibilities frontiers. Alphas Production Possibilities Frontier Omegas Production Possibilities Frontier popcorn popcorn 300 300 275 275 250 250 2

a. In the absence of trade assume that each country decides to use half of its resources in the production of each good. How much of each good does each country produce and consume? b. Which country has the comparative advantage in Peanuts? Which country has the comparative advantage in Popcorn? Explain and show your work.

c. Now suppose that each country decides to completely specialize in the good in which each has a comparative advantage. How much of each good does each country produce?

d. If each country decides to trade 100 units of popcorn for 100 units of peanuts, how much of each good does each country now consume? Using these answers why do economists often support free trade?

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