Answered: Nation A Nation B Y = 225 U₁ = (XY) UA…

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 two products, X and Y, and the two nations, A and B. The following equations provide the production possibility frontier and utility function for each country:

A. Does nation A’s economy exhibit constant opportunity cost in production? How about nation B? Support your answer using numeric/quantitative example.

B. What is the optimal level of production and consumption in autarky for nation A and nation B which maximizes its community utility? Show full solution for both nations.

C. Who has comparative advantage in producing X? How about Y? Support your answer. (5 points)

Nation A
Nation B
Y = 225
U₁ = (XY)
UA
Y = 121
-
UB
40
186
Ug = (XY) =

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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