1. The world economy consists of two countries, Australia and New Zealand. Both countries
produce two goods, wool and coal. You are given the following production costs (resources
required) for this economy: Australia has access to 250 resources, New Zealand has access to
200 resources. Under autarky, both countries allocate resources equally between the two goods.
Which of the following statements is true if we allow for trade to occur between Australia and
New Zealand? a. Trade will occur as long as the exchange rate for wool is between 1.33 and 1.67
units of coal. b. Trade will occur as long as the exchange rate for coal is between 1 and 1.25 units
of wool. c. Trade will occur as long as the exchange rate for coal is between 1.33 and 1.67 units
of wool. d. Trade will occur as long as the exchange rate for wool is between 1 and 1.25 units of
coal. Your answer is incorrect. The correct answer is: Trade will occur as long as the exchange
rate for wool is between 1 and 1.25 units of coal.