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Unformatted text preview: region B, the total wheat produced is less than 5000, and hence the U.S. is unable to meet its requirements. However, depending on the bargaining power of trade, the two countries can exploit gains from trade by being on the joint PPF at any other point. For example, if the two countries specialize completely, then there will be 100 nuclear weapons and 10,000 million tons of wheat. In that case, if the U.S. wants 96 devices, then North Korea gets 4, which is acceptable to it. The U.S. gets at least 5000 million tons of wheat, and the rest can be divided in a way such that North Korea gets at least 48 million tons. e. The tastes of the two countries might be quite diﬀerent, so that none of the allocations along the joint PPF are acceptable to one of the countries. Also, since nuclear weapons are a form of national defense, which is a public good, the optimal allocation using markets might itself not be optimal. 2 Professor Schuler Economics 101 Spring 2006 3...
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