13. What assumption(s) in the production possibilities model may lead the model to overstate the gains…

13. What assumption(s) in the production possibilities model may
lead the model to overstate the gains from trade and cause the
actual gains to be less than predicted by the model?

Place Order

The assumption that there is only a two good economy. In reality
the economy is much more complex, so the gains from trade will in
fact be larger than what the model predicts.

The assumption that individuals will consume all that is
produced. This leads the model to overstate the gains from trade
because in reality items will not be consumed.

The assumption that all resources are converted into the other
sector. This implies that there is no idle resources in the
economy. Therefore, there is no unemployment in the model and all
production facilities are running at 100 percent capacity. In
reality there will be unemployment and idle production facilities
because all of the land, labor, and capital can’t be converted into
the other sector.

14.Who gains from trade in this scenario? Who may be hurt by
trade in this scenario?

Overall at the aggregate level both countries gain. There is no
one hurt by trade.

Overall we can’t say who benefits or who is hurt by trade. There
are too many unknown factors to make a general prediction. …

Overall at the aggregate level both countries lose. Overall
consumption is decreased for both countries, because workers in the
sector that disappeared may become unemployed. The communities that
have large numbers of unemployed people will be hurt.

Overall at the aggregate level both countries gain. Overall
consumption is increased for both countries, but workers in the
sector that disappeared may become unemployed. The communities that
have large numbers of unemployed people will be hurt.