MACROECONOMICS - ANSWER ALL PARTS:
(a) Assume that prior to trade, Ecuador is producing 15 units of fish and 5 units of melons. What can you conclude about the use of resources in Ecuador? Explain using the production possibilities curve model
(b) Which country has the comparative advantage in the production of fish? Explain using numbers
(C) Now assume each country specializes in the production of the good in which it has a comparative advantage, and the terms of trade are 12 units of fish for 1 unit of melons Will Ecuador gain from trade? Explain
(d) Suppose the maximum production of melons in Ecuador decreases. How will this affect Ecuador's opportunity cost of producing fish? Explain.