Country C can produce seven pounds of food or four yards of textiles per unit of input.

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QUESTION:

1. Country C can produce seven pounds of food or four yards of textiles per unit of input. Compute the opportunity cost of producing food instead of textiles. Similarly, compute the opportunity cost of producing textiles instead of food.

2. Consider the no-trade input/output situation presented in the following table for Countries X and Y. Assuming that free trade is allowed, develop a scenario that will benefit the citizens of both countries.

INPUT/OUTPUT WITHOUT TRADE

Country

X

Y

Total

I. Units of Input (000,000)
Food

70

60

Textiles

40

30

II. Output per Unit of Input (lbs or yards)
Food

17

5

Textiles

5

2

III. Total Output (lbs or yards) (000,000)
Food

1,190

300

1,490

Textiles

200

60

260

IV. Consumption (lbs or yards) (000,000)
Food

1,190

300

1,490

Textiles

200

60

260


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