Letâ€™s assume there are only 2 countries that produce 2 good. More specifically, suppose that the United States (US) and the United Kingdom (UK) each have 2 units of productive resources, 1 used to produce Wine, the other Cloth. The US can produce 40 units of Wine with 1 unit of productive resources and 40 units of Cloth with 1 unit of productive resources. The UK can produce 20 units of Wine with 1 unit of productive resources and 10 units of cloth with 1 unit of productive resources. Using this information, please answer the questions below:
1. Given specialization, what is production before trade? After trade?
2. What are the gains from trade?
3. What is the â€œrangeâ€ of potential exchange rates between US and UK?