2. Two countries, Haiti and

timer Asked: Dec 4th, 2015

Question description

2. Two countries, Haiti and the Dominican Republic, produce rum and beer. Each island has a labor force of 2400 and the weekly productivity of each worker (in hundreds of cases) is as follow

Rum  Beer 

Haiti  2  4

Dominican Republic  3  9

  1. Which county has an absolute advantage in the production of Rum? Beer?

  2. Which country has a comparative advantage in the production of Rum? Beer?

  3. Sketch the production possibility frontier (PPF) of both countries

  4. Both countries want to produce an equal amount of cases of Rum and Beer. How should they allocate their workers to the two sectors? Show your table of production and graph it on the PPF

  5. Can specialization and trade move both countries beyond their PPF? How many (equal) cases will both countries end up with?

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