Answer:
If Morocco produces 120 belts and exports 70 belts:
- it will receive 105 swords (= 70 x 1.5)
- it will consume 50 belts (its domestic consumption of belts will decrease by 10)
Explanation:
Without trade, Morocco will produce 60 swords and 60 belts and consume them all, but if it engages in trade, it will produce 120 belts.
- Morocco's opportunity cost of producing one belt = 60 / 60 = 1
- Morocco's opportunity cost of producing one sword = 60 / 60 = 1
- Estonia's opportunity cost of producing one belt = 100 / 40 = 2.5
- Estonia's opportunity cost of producing one sword = 40 / 100 = 0.25
If Morocco produces 120 belts and keeps current consumption level:
- it consumes 60 belts
- it can trade 40 belts for 60 swords
- it will have a 20 belt surplus production
If Morocco produces 120 belts and exports 70 belts:
- it will receive 105 swords (= 70 x 1.5)
- it will consume 50 belts
