Figure 3-2
Uzbekistan's Production Possibilities Frontier
Azerbaijan's Production Possibilities Frontier
-Refer to Figure 3-2.If Uzbekistan and Azerbaijan each spends all its time producing the good in which it has a comparative advantage and trade takes place at a price of 12 bolts for 36 nails,then

Question

Figure 3-2
Uzbekistan's Production Possibilities Frontier
Azerbaijan's Production Possibilities Frontier  
-Refer to Figure 3-2.If Uzbekistan and Azerbaijan each spends all its time producing the good in which it has a comparative advantage and trade takes place at a price of 12 bolts for 36 nails,then

Quizplus · Accepted Answer

According to the production possibilities frontier in Figure 3-2, Uzbekistan has a comparative advantage in producing bolts while Azerbaijan has a comparative advantage in producing nails. Therefore, if they specialize in producing these goods and trade at a price of 12 bolts for 36 nails, both countries can benefit from trade. Uzbekistan can sell bolts for 36/3 = 12 nails and buy nails for 12/3 = 4 bolts. Azerbaijan can sell nails for 12 bolts and buy bolts for 12/4 = 3 nails. Both countries can consume more of both goods than they could produce on their own, leading to gains from trade.

Figure 3-2 Uzbekistan's Production Possibilities Frontier