HANDOUT 1: Linear Production Possibility Curves

Comparative Advantage Experiment

One of you is the U.S. Trade Representative while the other is the Trade Representative for Mexico in a world that only has these two countries. You are responsible to your nation's citizens relative to optimizing their access to two goods -- trucks and computers.

_____________________ Is the U.S. trade representative in our world (put your name)

_____________________ Is the Mexican trade representative in our world (put your name)

The United States has a linear production possibilities frontier that implies maximum production of trucks and computers of 10 each. Mexico also has a linear production possibilities curve allowing for maximum production of trucks of 9 and computers of 3. Draw the corresponding curves in the graphs below.

1) Fill in your personal preferences for the combination of the two goods under autarky (no trade).

(your preferences must imply integer numbers of trucks and computers)

2) Our terms of trade are ______ computers for ______ trucks

4) Fill in your personal preferences for the combination of the two goods that will be available for consumption after trade.

(your preferences need not imply integer numbers of trucks and computers)