Assume that the world economy is composed of only two countries (Canada and the United States) and only two goods (steel and wheat). The table below reports the units of steel or wheat per unit of labor in Canada and in the United States Steel per Wheat per unit of labor unit of labor Canada United States 9. 3 Suppose both the US and Canada have 10 units of labor. Use the joint PPF to answer the following: If the two countries are producing 25 units of wheat, what is the opportunity cost of wheat? Hint: draw the PPF and ask what is the slope when 25 units are being produced? 2.5 2.75 3
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- France and Tunisia both have Mediterranean climates that are excellent for producing/harvesting green beans and tomatoes. In France it takes two hours foreach worker to harvest green beans and two hoursto harvest a tomato. Tunisian workers need only one hour to harvest the tomatoes but four hours to harvest green beans. Assume there are only two workers, one in each country, and each works 40 hours a week. a. Draw a production possibilities frontier for each country. Hint: Remember the production possibility frontier is the maximum that all workers can produce at a unit of time which, in this problem, is a week. b. Identify which country has the absolute advantage in green beans and which country has the absolute advantage in tomatoes. c. Identify which country has the comparative advantage. d. How much would France have to give up in termsoftomatoestogainfromtrade? How much would it have to give up interms o fgreen beans?Listen ●0M M 000 M On the above PPFs, imagine that the poor nation is operating at (5,18) and the wealthy nation is operating at (6,78). We can conclude that: (P.S. You might have to magnify the picture-try holding Ctrl and scrolling with the mouse wheel.) The poor nation is producing inefficiently and the wealthy nation is producing efficiently. The wealthy nation is producing inefficiently and the poor nation is producing efficiently. Both nations are producing inefficiently. Both nations are achieving production efficiency.Assume that two countries Canada and China produce just two goods- particle board, plywood sheets- in their economies. Also assume that there is no currency in the system and countries, if willing to trade, just exchange the two goods. The only input being used in the production of the goods is the Labour. Canada can produce 10 particle boards or 25 plywood sheets in 100 hours. China can produce 20 particle boards or 50 plywood sheets in 100 hours. a. Does any country have absolute advantage in the production of the goods? b. Does any country have the comparative advantage in producing the particle boards? c. Does there exist a feasible exchange rate between particle board and plywood sheet (tonnes particle board / tonnes plywood sheet)? If yes, show that if countries specialize and trade at this exchange rate, they can both raise their consumption level.
- The table below shows the production of oil and lumber of ONE worker in China and India: rice (in pounds) shirts (unit) CHINA 400 200 INDIA 330 110 a) BEFORE trade (or with no trade), each country has 100 workers, and they allocate the worker for the production of the goods in the following way: China allocates 35 workers in the production of rice, and 65 workers in the production of shirts; India allocates 50 workers in the production of rice and 50 workers in the production of shirts. Find the maximum production and consumption of both goods for each country! b) If the countries decide to engage in trade (WITH TRADE), they will specialize in the production of the good in which they have comparative advantage. In which good should China specialize? How about India? JUSTIFY! (To answer this question you must calculate the opportunity cost of each good for both countries and then find the country's comparative advantage). What is the WITH TRADE production of the countries? c) If the…There are two countries, Atlantis and Thule, and two goods, Clothing (C) and food (F) In Atlantis, it takes 3 units of labour to produce a unit of Clothing and 3 units of labour to make a unit of Food. In Thule, a unit of Clothing requires 2 units of labour, and a unit of Food requires 5 units of labour. Assume that Atlantis has 300 units of labour, and Thule has 500 units of labour. (a) What is the opportunity cost of Food in terms of Clothing in each country? (b) Which country has an absolute advantage in which good? (c) Which country has a comparative advantage in which good? Why? (d) Draw the production possibilities frontier for each country (put Food on the horizontal axis). Label axes and slopes. (e) Draw the world production possibilities frontier (assuming labour does not move between countries). Again, put Food on the horizontal axis. Label axes and important points on - 2 - the diagram. (f ) Draw the world relative supply curve (labelled RS) for F/C with the relative price…Visualize a PPF (Production Possibility Frontier/Curve) for two countries the United States and Taiwan. Both countries produce YO-YOs and Tennis Shoes. The PPF for the United States shows that on the X-Axis its Output for YO-YOs is 100 million (per year) and Y-Axis its Output for Tennis Shoes is 25 million (per year). The PPF for Taiwan shows that on the X-Axis its Output for YO-YOs is 20 million (per year) and Y-Axis its Output for Tennis Shoes is 10 million (per year). Considering the PPFs for both countries, the opportunity cost of producing 1 yo-yo in Taiwan is: Answers: A. 2 pairs of tennis shoes. B. One-half of a yo-yo. C. Greater than the opportunity cost in the United States. D. Equal to the opportunity cost of producing 1 yo-yo in the U.S.
- Visualize a PPF (Production Possibility Frontier/Curve) for two countries the United States and Taiwan. Both countries produce YO-YOs and Tennis Shoes. The PPF for the United States shows that on the X-Axis its Output for YO-YOs is 100 million (per year) and Y-Axis its Output for Tennis Shoes is 25 million (per year). The PPF for Taiwan shows that on the X-Axis its Output for YO-YOs is 20 million (per year) and Y-Axis its Output for Tennis Shoes is 10 million (per year). Refer to the above PPF descriptions. Inspection of the linear PPFs of both countries illustrated reveals that: Answers: A. The United States cannot benefit from trading with Taiwan. B. Taiwan has no comparative advantage. C. Taiwan has comparative advantage in production of tennis shoes. D. None of the above(Parts a-c) Assume two countries, Gisslovia and Gerardania, both have 1200 units of labor that can be used to produce food or clothing. In Gisslovia it takes 4 units of labor to produce one unit of food and 3 units of labor to produce one unit of clothing. In Geradania it takes 3 units of labor to produce one unit of food and 2 units of labor to produce one unit of clothing. a) If each country allocated one-half of its labor to food production how much food would be produced? b) If each country allocated one-half of its labor to clothing production how much clothing would be produced? c) Suppose Gisslovia only produced food. If Gerardania produced enough food to keep the total amount equal to part a, how much clothing would they produce?1. One German worker can produce either 5 cars or 10 tons of grain a year. One Japanese worker can produce either 4 cars or 5 tons of grain a year. To keep things simple, assume that each country has 100 million workers. a) Complete the following table with the number of workers needed to make one car or one ton of grain in Germany and Japan Workers Needed to make 1 Car Germany Japan 1/5 1/4 1/10 1/5 1 Ton of Grain b) Graph the production possibilities frontier (PPF) for German economy as well as the PPF for Japanese economy in the same graph. Carefully label and identify the endpoint in your graphs. c) Given all the information above, which country has an absolute advantage in producing cars? Which country has an absolute advantage in producing grain. Why?
- Suppose there are two countries Peru and Japan that produces 7,523 units ofFood or 17,853 units of Fuel using a labour force of 8000. Japan can produce 5,733 units of Food or 24,156 units of Fuel using a labour force of 5,000. a) On two seperate graphs sketch the initial PFF for the two countries with Food on the x-axis. b) If Japan and Peru employ half it workers to produce Fuel how much each good can consume? Label this point A and A* respectively. c) Which country has the absolute advantage in food? In fuel? Explain. d) Which country has the comparative advantage in food? In fuel? Explain. e) Which good(s) should each country specialized in?Productivity Table Soup per unit of labor Swords per unit of labor Wesley 30 25 Fezzik 10 30 Which of the following is true? Fezzik has the absolute advantage in swords and the comparative advantage in swords. Fezzik and Wesley both have the comparative advantage in soup. Wesley has the absolute advantage in soup and the comparative advantage in soup. Wesley has the comparative advantage in swords and the absolute advantage in soup. The countries of Orion and Scorpius are small mountainous nations. Both produce granite and blueberries. Each nation has a labor force of 800. The following table gives production per month for each worker in each country. Assume productivity is constant and identical for each worker in each country. Orion workers Scorpius workers Tons of Granite Bushels of Blueberries 18 6 3 12 Productivity of one worker for one month a. Which country has an absolute advantage in the production of granite? Which country has an absolute advantage in the production of blueberries? b. Which country has a comparative advantage in the production of granite? Of blueberries? c. Sketch the PPF's for both countries. d. Show that specialization and trade can move both countries beyond their PPF's