Two countries produce two different items, root beer and cheese. The table below shows
the amounts of each commodity needed to produce one unit (gallons or wheels) of output.
Each country starts with 100 units of productive resources. Consumption in each country is
equal to production – that is, if trade is warranted, citizens need to receive at least as much
root beer and cheese as they started with before trade. Given the following information,
calculate the best possible trading scenario that maximizes global welfare. Remember each
country has 100 productive units which they can use in any combination. Before trade, each
country has allocated 50% of their productive units to each product. That is, before trade,
Hokieland makes 25 gallons of root beer and 10 wheels of cheese. What should each
country do if they trade? [be careful, you need to make at least as much after trade as you
had before trade.] Explain your solution. Use this example to clearly explain the
difference between Absolute and Comparative advantage.