Nepal and Tibet can both produce butter [B] or tea [T].

        If Nepal allocatesall resources to butter, it can produce a maximum of 500 units ayear. If all its

        resources areallocated to tea, it can produce a maximum of 2500 units.

If Tibet allocates all resources tobutter, it can produce a maximum of 1500 units a year. If all itsresources are allocated to tea, it can produce a maximum of 3000units of tea.

[a] Political considerations initiallymean that trade is not possible between Nepal and Tibet.

        If Nepal produces 1250units of tea for itself, how many units of butter does it producefor itself?

              

        If Tibet also produced1250 units of tea for itself, how many units of butter does itproduce for itself?

        What is the combinedamount of tea produced by the countries when trade is not possible?The combined amount of butter?

[b] If political considerations changeand trade becomes possible, which good will Nepal trade to

        Tibet? Prove youranswer.

[c]   If Nepal and Tibetpursue complete specialization in the production of theircomparative advantage products when initiating trade, what is thecombined amount of tea produced by the countries?

        Under completespecialization in comparative advantage, what is the combinedamount of butter?

        Comparing combinedproduction prior to the possibility of trade [see [a]] withcombined production available under specialization, what are thepotential gains from trade as measured by additional butter and/ortea?  

[d] Assuming complete specializationby both countries, identify a specific trade [i.e. an amount of teatraded for an amount of butter] that will leave both countriesbetter off when compared to their positions in [a].