Country A and Country B produce the same two products, hammocks and looms. Country A
can produce a maximum of 60 hammocks or 40
looms, while Country B can produce a
maximum of 40 hammocks or 20 looms.
(a) What is the opportunity cost to produce a loom
in terms of hammocks in Country A?
(b) Which country has a comparative advantage in
producing looms? Explain.
(c) Internationally, if 1 loom is traded for 1.75
hammocks, who will benefit from trading:
Country A only, Country B only, both
countries, or neither country?
(d) Assume there is international trade.
(i) Can a country produce beyond its
production possibilities curve (PPC)?
(ii) Can a country consume beyond its PPC?