Answered: Honduras's PPF Brazil's PPF 10,000…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The accompanying Production Possibilities Frontiers (PPF) represent hypothetical levels of production for Honduras and Brazil. Assume the two countries are initially producing and consuming in autarky at point A on each of their PPFs.

Suppose these countries decide to trade. Each country will specialize in the production of the good for which it has a comparative advantage.

a. What will each country produce?

a. Honduras will produce both goods.

b. Brazil will produce both goods.

c. Honduras will produce bananas and Brazil steel.

d. Honduras will produce steel and Brazil bananas.

b. Suppose each country specializes in the production of the good for which it has a comparative advantage, and they trade at a price of of 4,000 tons of steel for 6,000 tons of bananas. Place the points labeled "Post Trade Consumption" to show the amounts of bananas and steel each country will have to consume after they trade.

(look at image)

Honduras's PPF
Brazil's PPF
10,000
10,000
9,000
9,000
Post Trade Consumption
Post Trade Consumption
8,000
8,000
7,000
7,000
శ్రింద
5,000
5,000
,000
,000
4,000
1,000
3,000
3,000
2,000
2,000
1,000
1,000
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
Steel (in tons)
Steel (in tons)
A,
(stfoj uiyseurut
(stfoj uiyseue

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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