Two goods model with identical endowments

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Given two countries (A and B) and two goods (X and Y) model with identical endowments:

A) Draw the PPF for Country A that displays increasing opportunity costs and also shows that country A that displays increasing opportunity costs and also shows that Country B produces more of good X.

B) In the Same graph, draw the PPF for country B that displays increasing opportunity costs and also shows that country B produces more of good Y.

C) Now draw a trade line that is tangent to BOTH PPFs. Assume that the slope of the trade line is the world relative price of the two goods. Does trade occur given the above information?

D) Explain why increasing opportunity costs occur within economy, how this affects the PPF and therefore trade.

Reference no: EM131007811

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