Demonstrate Your Understanding of the Principles of Absolute Advantage and Comparative

Demonstrate your understanding of the principles of absolute advantage and comparative advantage. The data in parts A, B, C, and D below correspond to points on the production possibility curve of two
countries. Draw the graph of the production possibility curves. For simplicity, assume the production possibility curves of these countries are straight lines. These production possibility curves require only two points on the graph. A straight line connecting these points, and extended to the axes, will represent the production possibility curve.
A) Country A and Country B are potential trading partners. Each country produces two goods: fish and wine. If Country A devotes all its resources to producing fish it can produce 1,000 fish, and if it devotes all its resources to producing wine, it can produce 2,000 bottles of wine. Draw the production possibility curve for Country A. In Country A, what is the opportunity cost of one bottle of wine in terms of fish?
B) If Country B devotes all its resources to producing fish it can produce 3,000 fish, and if it devotes all its resources to producing wine it can produce 3,000 bottles of wine. Draw the production possibility curve for Country B. In Country B, what is the opportunity cost of one bottle of wine in terms of fish?
C) Do you see any possibility of gains from trade between these two countries? Does Country A have any advantage in producing either wine or fish and trading for the other good? Is this advantage an absolute or
a comparative advantage?
D) Suggest a trade between these two countries which would make them both better off. Illustrate on their production possibility curves how this would make both countries better off, by allowing them to
consume a mix of wine and fish outside their production possibility curves.