S produces consumes at a brazil at b prof david lee

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Unformatted text preview: Prof. David Lee AEM/ECON 2300 8 of 40 Coffee Lecture 3 GAINS FROM TRADE WITH CONSTANT MARGINAL COSTS Each country produces and consumes: Computers U.S. 20 10 Brazil Autarky: Coffee 15 20 Now allow specialization (given constant marginal opportunity costs of production) Prof. David Lee AEM/ECON 2300 9 of Lecture 3 TOTAL SPECIALIZATION U.S. Brazil Computers 40 Computers X 40 30 20 30 A 10 20 PPFBR B 10 PPFUS Y 10 Prof. David Lee 20 30 40 Coffee AEM/ECON 2300 10 20 30 10 of 40 Coffee Lecture 3 GAINS FROM TRADE WITH CONSTANT MARGINAL COSTS Each country produces and consumes: Computers U.S. 20 10 Brazil Autarky: Coffee 15 20 Summing up – Computers: MCUS = ½ coffee, MCBR= 4/3 coffee → So U.S. has comparative advantage in computers Coffee: MCUS = 2 computers, MCBR= 4/3 compute...
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