The effect on PPF for Wheat and cloth if the supply of capital falls by 10% and the supply of labor increases by 10%. Concept Introduction: Production Possibility Frontier : It is a curve which shows the maximum possible output of two goods with the given set of efficiently used inputs .

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6. Shifts in production possibilities Suppose Argentina produces two types of goods: agricultural and capital. The following diagram shows its current production possibilities curve (PPC) for barley, an agricultural good, and airplanes, a capital good. Drag the production possibilities curve (PPC) on the graph to show the effects of a time-saving innovation in the manufacturing of airplanes. Note: Select either end of the curve on the graph to make the endpoints appear. Then drag one or both endpoints to the desired position. Points will snap into position, so if you try to move a point and it snaps back to its original position, just drag it a little farther. AIRPLANES (Thousands) 180 150 120 8 O 60 30 0 0 70 PPC 140 210 280 BARLEY (Millions of bushels) 350 420 PPC

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Chapter 2, Problem 6P

To determine

The effect on PPF for Wheat and cloth if the supply of capital falls by 10% and the supply of labor increases by 10%.

Concept Introduction:

Production Possibility Frontier: It is a curve which shows the maximum possible output of two goods with the given set of efficiently used inputs .

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6. Shifts in production possibilities Suppose Argentina produces two types of goods: agricultural and capital. The following diagram shows its current production possibilities curve (PPC) for barley, an agricultural good, and airplanes, a capital good. Drag the production possibilities curve (PPC) on the graph to show the effects of a time-saving innovation in the manufacturing of airplanes. Note: Select either end of the curve on the graph to make the endpoints appear. Then drag one or both endpoints to the desired position. Points will snap into position, so if you try to move a point and it snaps back to its original position, just drag it a little farther. AIRPLANES (Thousands) 180 150 120 8 O 60 30 0 0 70 PPC 140 210 280 BARLEY (Millions of bushels) 350 420 PPC

4. Shifts in production possibilities Suppose Spain produces two types of goods: agricultural and capital. The following diagram shows its current production possibilities frontier for alfalfa, an agricultural good, and locomotives, a capital good. Drag the production possibilities frontier (PPF) on the graph to show the effects of a breakout of avian flu that sickens millions of workers. Note: Select either end of the curve on the graph to make the endpoints appear. Then drag one or both endpoints to the desired position. Points will snap into position, so if you try to move a point and it snaps back to its original position, just drag it a little farther. (? 420 PPF 350 280 210 140 70 PPF 40 80 120 160 200 240 ALFALFA (Millions of bushels) LOCOMOTIVES (Thousands)

b. Kelen and Chris produce rice and wheat. In an hour, Kelen can produce 1 unit of wheat or one unit of rice, while Chris can produce 2 units of wheat and 3 units of rice. They each work 10 hours a day. (8.75) i. Who has an absolute advantage in producing wheat? Who has an absolute advantage in producing rice? Explain. ii. Who has comparative advantage in producing wheat? Who has Comparative advantage in producing rice? Draw a production possibilities frontier for Kelen and Chris assuming that each spends same number of hours each day as the other in producing wheat and rice.