(Solved): 1. Suppose that in one day the Canada can produce either 20 units of corn or 80 hats or some combi ...

1. Suppose that in one day the Canada can produce either 20 units of corn or 80 hats or some combination of the two (MRT is constant). Mexico can produce 30 units or corn or 90 hats ( MRT is constant). What is the opportunity cost of one unit of corn for each country? Of one hat? Explain. Who has a comparative advantage in corn? In hats? Explain. 2. From problem \#2, illustrate and explain what you know about the trade price of hats for corn. 3. In isolation Mexico chooses to produce (and consume) 100 units of cloth and 40 units of plastic. Mexico's internal trade off rate is 1 unit of cloth for 2 units of plastic (this rate is constant). Illustrate this with a carefully labeled diagram (indicate slope and intercepts). Now suppose that Mexico can trade at a rate of 1 unit of cloth $$=1$$ unit of plastic. What will Mexico produce with trade? Explain. Suppose that with trade Mexico consumes 60 units of plastic; what are Mexico's real gains from trade (i.e., extra units of cloth and plastic that it consumes)? Illustrate and explain.