7. Trading under increasing opportunity costsThe following graph shows the production possibilities frontier for the imaginary country of Contente under conditions of increasing costs. In theabsence of trade, the relative cost of rice in Contente in terms of computers (or the marginal rate of transformation (MRT) of rice into computers)is shown by the slope of line t₁, tangent to the production possibilities frontier at point A.RICE (Bushels)1009080706050403020100024"6сIB B8 10 12COMPUTERS1416184₁20Consumption After Trade? Which of the following most accurately describes Contente's economy in the absence of trade?O Contente produces 78 bushels of rice but consumes only 60 bushels of rice.O Contente produces and consumes 6 computers and 60 bushels of rice.O Contente consumes computers and 78 bushels of rice.O Contente produces 6 computers and 78 bushels of rice.O Contente produces and consumes 6 computers and 78 bushels of rice.At point A, the slope of line ti reveals that Contente must foregoslope.)Suppose that Contente recognizes that it has a comparative advantage in the production of computers. Contente decides to specialize in makingcomputers and enters international trade. The international terms of trade (the price of rice in terms of computers) are shown by the slope of theline £2, tangent to the production possibilities frontier at point B.The slope of to reveals that now Contente foregoescomputers in terms of rice ▼bushels of rice in order to produce 1 computer. (Hint: Select a line to see itsbushels of rice in order to produce 1 computer. This means that the relative cost ofAssume that Contente chooses to consume the same number of computers as it did in the absence of trade.On the previous graph, use the purple point (diamond symbol) to indicate Contente's consumption after trade.According to the graph, Contente's production gain from specialization isand its consumption gain from trade is

PPC: Graphical representation of the combination of two goods that can be produced in the economy in…

7. Trading under increasing opportunity costs The following graph shows the production possibilities frontier for the imaginary country of Contente under conditions of increasing costs. In the absence of trade, the relative cost of rice in Contente in terms of computers (or the marginal rate of transformation (MRT) of rice into computers) is shown by the slope of line t₁, tangent to the production possibilities frontier at point A. RICE (Bushels) 100 90 80 70 60 50 40 30 20 10 0 02 4 6 8 10 COMPUTERS 12 B 14 16 18 20 Consumption After Trade (?)

7. Trading under increasing opportunity costs The following graph shows the production possibilities frontier for the imaginary country of Contente under conditions of increasing costs. In the absence of trade, the relative cost of rice in Contente in terms of computers (or the marginal rate of transformation (MRT) of rice into computers) is shown by the slope of line t₁, tangent to the production possibilities frontier at point A. RICE (Bushels) 100 90 80 70 60 50 40 30 20 10 0 02 4 6 8 10 COMPUTERS 12 B 14 16 18 20 Consumption After Trade (?)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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