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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 corn in Contente in terms of phones (or the marginal rate of transformation (MRT) of corn into phones) is shown by the slope of line f, tangent to the production possibilities frontier at point A. 400 300 Consumption After Trace

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 corn in Contente in terms of phones (or the marginal rate of transformation (MRT) of corn into phones) is shown by the slope of line f, tangent to the production possibilities frontier at point A. 400 300 Consumption After Trace

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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5. 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 corn in Contente in terms of phones (or the marginal rate of transformation (MRT) of corn into phones) is shown by the slope of line f, tangent to the production possibilities frontier at point A. CORN (Bushels) 400 300 320 200 210 200 100 120 80 40 0 0 2 4 0 8 10 PHONES 12 14 10 18 Consumption After Trade
Transcribed Image Text:5. 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 corn in Contente in terms of phones (or the marginal rate of transformation (MRT) of corn into phones) is shown by the slope of line f, tangent to the production possibilities frontier at point A. CORN (Bushels) 400 300 320 200 210 200 100 120 80 40 0 0 2 4 0 8 10 PHONES 12 14 10 18 Consumption After Trade
Which of the following most accurately describes Contente's economy in the absence of trade? Contente produces 6 phones and 312 bushels of corn Contente consumes 6 phones and 312 bushels of carn. Contente produces and consumes 6 phones and 312 bushels of corn. Contente produces 312 bushels of corn but consumes only 240 bushels of corn. O contente produces and consumes 6 phones and 240 bushels of corn. Atpoint A, the slope of line 7, reveals that contente must forego [ slope.) Suppose that contente recognizes that it has a comparative advantage in the production of phones. Contente decides to specialize in making phones and enters international trade. The international terms of trade (the price of corn in terms of phones) are shown by the slope of the line fa, tangent to the production possibilities frontier at point B. The slope off reveals that now Contente foregoes in terms of corn bushels of corn in order to produce 1 phone. (Hint: Select a line to see its bushels of corn in order to produce 1 phone. This means that the relative cost of phones Assume that contente chooses to consume the same number of phones 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 is 1 and its consumption gain from trade is
Transcribed Image Text:Which of the following most accurately describes Contente's economy in the absence of trade? Contente produces 6 phones and 312 bushels of corn Contente consumes 6 phones and 312 bushels of carn. Contente produces and consumes 6 phones and 312 bushels of corn. Contente produces 312 bushels of corn but consumes only 240 bushels of corn. O contente produces and consumes 6 phones and 240 bushels of corn. Atpoint A, the slope of line 7, reveals that contente must forego [ slope.) Suppose that contente recognizes that it has a comparative advantage in the production of phones. Contente decides to specialize in making phones and enters international trade. The international terms of trade (the price of corn in terms of phones) are shown by the slope of the line fa, tangent to the production possibilities frontier at point B. The slope off reveals that now Contente foregoes in terms of corn bushels of corn in order to produce 1 phone. (Hint: Select a line to see its bushels of corn in order to produce 1 phone. This means that the relative cost of phones Assume that contente chooses to consume the same number of phones 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 is 1 and its consumption gain from trade is
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