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Suppose that Belgium and Denmark both have 100 units each of capital and labor, and that...

Suppose that Belgium and Denmark both have 100 units each of capital and labor, and that they share the same CRS technology with which they produce beer and cheese. However, tastes differ in the two countries: consumers in Belgium have a strong preference for cheese, and consumers in Denmark have a strong preference for beer. Will there be trade? What would you expect the pattern of trade to look like? Do you think we can still talk about comparative advantage in this case? Why or why not? (To answer, first draw the PPF – how do they look different/the same? – and then the indifference curves - how do they look different/the same? How do the price lines look? Without even drawing the PPFs and the indifference curves, where would you expect the relative price of cheese to be higher/lower?)

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