Question: Assume that:

- China consists of 1 billion people, all of them workers

- Labor is the only resource needed to produce dumplings and sweaters

- A worker can produce 100 dumplings per day if he spends all his time making dumplings. He can make 5 sweaters per day if he spends all his time making sweaters.

a) Draw the PPF for China.

b) What is the opportunity cost of a sweater?

c) In the 1960s, the Communist Party insisted that each worker stand at his/her workplace and sing praises of Chairman Mao for 2 hours each day (workers spend 10 hours per day at work). Show the impact of this policy on the Chinese economy as illustrated in (a).

d) A worker in India can produce 80 dumplings or 3 sweaters per day. Does it pay for China and India to trade? If not, why not? If so, explain what each country should do and why.