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1. Working with Numbers and Graphs Q1 Suppose that two economies, named Arcardia and Euphoria, can use their resources to produce good X, good Y, or a combination of both. The following table shows the four different combinations of the two goods each country can produce. Arcardia Good X Good Y Euphoria Good X Good Y Combinations 288 0 540 0 B 192 240 360 120 96 480 180 240 D 0 720 0 360 Arcardia has a comparative advantage in the production of good and Euphoria has a comparative advantage in the production of good Which of the following terms of trade would allow both Arcardia and Euphoria to gain from trade? Check all that apply. 1/2 unit of good X per unit of good Y 1/4 unit of good X per unit of good Y 2 units of good X per unit of good Y 5/4 units of good X per unit of good Y Initially, neither of the two economies is specializing in the production of one of the two goods, nor are the two economies trading with each other. In the no-specialization-no-trade (NS-NT) scenario, Arcardia produces and consumes 192 units of good X and 240 units of good Y combination B), and Euphoria produces and consumes 180 units of good X and 240 units of good Y (combination C). Initially, neither of the two economies is specializing in the production of one of the two goods, nor are the two economies trading with each other. In the no-specialization-no-trade (NS-NT) scenario, Arcardia produces and consumes 192 units of good X and 240 units of good Y (combination B), and Euphoria produces and consumes 180 units of good X and 240 units of good Y (combination C). Now suppose that each economy decides to completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the economy that produces good X will produce units of good X, and the economy that produces good Y will produce units of good Y. Suppose the economy that produces good X trades 320 units of good X to the other economy in exchange for 320 units of good Y. Complete the following table by entering each economy's production decisions, the amount of each good that each economy exports or imports, each economy's final consumption of each good with trade, and the gains from trade-the amount by which each economy has increased its consumption of each good relative to the NS-NT scenario. Arcardia Euphoria Good Y Good X Good Y Good X (Units) (Units) (Units) (Units) No-Specialization-No-Trade Case Production and consumption Specialization-Trade Case 192 240 180 240 Production Trade action Consumption Gains from trade

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