b. The opportunity cost of a bushel of wheat in the US is 4 units of clothing; the opportunity cost of a bushel of wheat in Brazil is only 2 units of clothing. Brazil is therefore the low opportunity cost producer of wheat, and after trade would be expected to specialize in wheat.
c. The opportunity cost of a unit of clothing in the US is 1/4 bushel of wheat; in Brazil it is 1/2 bushel. The US is the low opportunity cost producer of clothing.
d. Comparative advantage goes to the low opportunity cost producer. Brazil has the comparative advantage in wheat and the US in clothing.
e. Autarky price ratios will reflect opportunity costs and therefore Px/Py will be 4 in the US and 2 in Brazil before trade. After trade, the world relative prices will settle somewhere between 2 and 4.
f. To construct PPFs, we must find the maximum possible outputs. They are given by the following table:
| Country | Wheat | Clothing |
|---|---|---|
| United States | 200 | 800 |
| Brazil | 120 | 240 |
After trade, with a price of wheat relative to clothing of 3, the US will specialize in clothing and its 1600 units of clothing will purchase 1600/3 units of wheat or 533.33 units of wheat -- more than it could have produced itself before trade.
Brazil will specialize in wheat, and its 120 units of wheat will purchase up to 360 units of clothing -- more than the 240 it could have produced itself before trade.