PPF 16 14 Without Trade 12 10 8 With Trade 6. 4. 2 50 100 150 200 250 300 350 400 Wheat (millions of bushels) Now suppose that the United States offers to sell 10 million cars to Mexico in exchange for 150 million bushels of wheat. On the previous graph, use the grey point (star symbol) to indicate the consumption bundle Mexico can achieve with trade if it continues to consume 200 million bushels of wheat. Mexico accept the deal the United States proposes. Cars (millions)
PPF 16 14 Without Trade 12 10 8 With Trade 6. 4. 2 50 100 150 200 250 300 350 400 Wheat (millions of bushels) Now suppose that the United States offers to sell 10 million cars to Mexico in exchange for 150 million bushels of wheat. On the previous graph, use the grey point (star symbol) to indicate the consumption bundle Mexico can achieve with trade if it continues to consume 200 million bushels of wheat. Mexico accept the deal the United States proposes. Cars (millions)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:PPF
16
14
Without Trade
12
With Trade
6.
4
0.
50
100
150
200
250
300
350
400
Wheat (millions of bushels)
Now suppose that the United States offers to sell 10 million cars to Mexico in exchange for 150 million bushels of wheat.
On the previous graph, use the grey point (star symbol) to indicate the consumption bundle Mexico can achieve with trade if it continues to consume
200 million bushels of wheat.
Мexico
accept the deal the United States proposes.
Cars (millions)
10
Transcribed Image Text:Suppose that there are 7 million workers in Mexico and that each of these workers can produce either 2 cars or 50 bushels of wheat in a year.
The opportunity cost of producing a car in Mexico is
bushels of wheat, and the opportunity cost of producing a bushel of wheat in Mexico is
cars.
Use the blue line (circle symbol) to draw Mexico's production possibilities frontier (PPF) on the following graph. Then use the black point (plus symbol)
to indicate the consumption bundle Mexico can achieve without trade if it chooses to consume 6 million cars.
20
18
PPF
16
14
12
Without Trade
10
8
With Trade
100
150
200
250
300
350
400
Wheat (millions of bushels)
50
4-
Cars (millions)
Expert Solution
Step 1
The value of the next best alternative foregone is known as opportunity cost.
Mexico: It can either produce 2 cars of 50 bushels of wheat.
2 cars = 50 bushels of wheat
1 car = 50/2 or 25 bushels of wheat
1 bushel of wheat = 2/50 or 0.04 cars
So, opportunity cost of 1 car is 25 bushels of wheat and 1 bushel of wheat is 0.04 cars.
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