In the graph below and before trade South Korea (SK) is producing and consuming at point B (KK' PPF) and Ghana (G) is producing and consuming at point A (GG' PPF).

After trade, SK produces 10 units of rice and no cocoa (point K') and G is producing at point C.

 Assume the 2 countries trade 3.85 units of rice with 3.85 units of cocoa. Will both countries benefit from trade? What’s the net gain for each country. Show all the work.

Suppose that the U.S. and Brazil produce only two goods --- computer and coffee. The table below gives its production possibilities.

Computer Opp Cost Coffee Opp Cost

U.S.: 12 4

Brazil: 5 10

1. Draw the graphs of the production frontier for each country. Make sure that you level the diagram properly and indicate the name of the country under the graph.

2. What are the opportunity costs of producing each good in the two countries? List them in the table.

3. On which good each country has a comparative advantage?

4. Which country exports computers? Coffee?

5. What is the range of TOT in which only Brazil gains from trade?

6. What is the range of TOT in which only the U.S. gains from trade?

7. What is the range of TOT in which both countries gain from trade?

13. If the international terms of trade settle at a level that is between each country’s opportunity cost

a. There is no basis for gainful trade for either country 

b. Both countries gain from trade

c. Only one country gains from trade

d. One country gains and the other country loses from trade