we move down along the frontier.the cost of producing one output is reduced by thesame Suppose the give up 4 units of the output on the vertical axis to get one more unit o output on the horiantal axis.This means that the total cost of producing the 4 units is the same as the total cost of producing the one unit,or that the marginal cost of the good on the borizontal axis is 4 times the marginal cost ofthe good on the vertical axis 9.Explain why goods will not be distributed efficiently among consumers ifthe MRT is not equal to the consumers'marginal rate of substitution. If the marginal rate of transformation,MRT.is not equal to the marginal rate of substitution,MRS,we ould reallocate inputs in producing output to leave the consumers and producers better off If the MRS is greater than the MRTthen consumers are willing to pay more for another unit of e another unit of the e good. between what consumers are willing to pay and what the producers have to pay to produce the extra unit.Note also that when MRT=MRS.the ratio of marginal cost will not be equal to the ratio of prices.This means that one good is being sold at a price below marg nal cost and one good is being sold at a price above marginal cost.We should increase the outpu of the one good whose price is above marginal cost and reduce the output of the other good whose price is below marginal cost. 10.Why can free trade between two countries make consumers of both countries better off? Free trade between two countries expands each country's effective production,and allows each country to onume at point above its original production possibilities frontier.Assuming each country has a comparative advantage in the production of some good or service,trade allows a country to specialize in the area where it has this advantage.It trades these outputs for those more cheaply produced in another country.onumer in both countries. 11.If Country A has an absolute advantage in the production of both goods compared to Country B,then it is not in Country A's best interest to trade with country B.True or false?Explain. This statement is false.A country can have an absolute advantage in the will still only have a co ction of me goods. 4 units of labor to produce good 1 and 8 units of labor to produce good 2 whereas Country B requires 8 units and 12 units respectively.Country A can produce both goods more cheaply so has an absolute advantage in the we move down along the frontier, the cost of producing one output is reduced by the same amount that the cost of producing the other output is increased. Suppose the MRT is 4 in absolute value terms, then we must give up 4 units of the output on the vertical axis to get one more unit of output on the horizontal axis. This means that the total cost of producing the 4 units is the same as the total cost of producing the one unit, or that the marginal cost of the good on the horizontal axis is 4 times the marginal cost of the good on the vertical axis. 9. Explain why goods will not be distributed efficiently among consumers if the MRT is not equal to the consumers’ marginal rate of substitution. If the marginal rate of transformation, MRT, is not equal to the marginal rate of substitution, MRS, we could reallocate inputs in producing output to leave the consumers and producers better off. If the MRS is greater than the MRT then consumers are willing to pay more for another unit of a good than it will cost the producers to produce another unit of the good. Both can therefore be made better off by arranging a trade somewhere between what consumers are willing to pay and what the producers have to pay to produce the extra unit. Note also that when MRT  MRS, the ratio of marginal cost will not be equal to the ratio of prices. This means that one good is being sold at a price below marginal cost and one good is being sold at a price above marginal cost. We should increase the output of the one good whose price is above marginal cost and reduce the output of the other good whose price is below marginal cost. 10. Why can free trade between two countries make consumers of both countries better off? Free trade between two countries expands each country’s effective production possibilities frontier, and allows each country to consume at a point above its original production possibilities frontier. Assuming each country has a comparative advantage in the production of some good or service, trade allows a country to specialize in the area where it has this advantage. It trades these outputs for those more cheaply produced in another country. Therefore, specialization benefits many consumers in both countries. 11. If Country A has an absolute advantage in the production of both goods compared to Country B, then it is not in Country A’s best interest to trade with country B. True or false? Explain. This statement is false. A country can have an absolute advantage in the production of all goods but they will still only have a comparative advantage in the production of some goods. Suppose Country A requires 4 units of labor to produce good 1 and 8 units of labor to produce good 2, whereas Country B requires 8 units and 12 units respectively. Country A can produce both goods more cheaply so has an absolute advantage in the