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Could you please review my homework. I am unsure how to draw the indifference curves.
that Belgium and Denmark both have 100 units each of capital and labor, and that they share the same CRS technology with which they produce beer and cheese. However, tastes differ in the two countries: consumers in Belgium have a strong preference for cheese, and consumers in Denmark have a strong preference for beer. Will there be trade? What would you expect the pattern of trade to look like? Do you think we can still talk about comparative advantage in this case? Why or why not?
Belgium and Denmark would still trade. Neither of the countries have a comparative advantage since they both have 100 units of capital and labor and have the same CRS technology. Their Production Possibilities Frontier would be identical and the opportunity cost of producing beer and cheese in both coutriees is the same due to the same level of technology. There is however a difference in pfererence since consumers in Belgium have a strong preference for cheese and consumers in Denmark have a strong preference for beer. This means that the relative price of beer is higher in Belgium and the relative price of cheese is higher in Denmark. This would mean that Belgium would export cheese and import beer and Denmark would export beer and import cheese.
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