the given case and explain the following statements.
Concept Introduction
Autarky: Autarky is a situation when no goods are imported from other country and the country is self-sufficient in its production.
Explanation of Solution
(a) Production Possibility Frontier of U.S. and Canada.
PPF of U.S.
Fig 1
- The above graph shows the PPF of U.S. for the production of footballs and lumber with quantity of footballs on the x-axis and quantity of lumber on the y-axis.
- U.S. can produce maximum 10 tons of lumber with zero production of footballs or 1,000 footballs with zero production of lumber.
PPF of Canada.
Fig 2
- The above graph shows the PPF of Canada for the production of footballs and lumber with quantity of footballs on the x-axis and quantity of lumber on the y-axis.
- Canada can produce maximum 8 tons of lumber with zero production of footballs or 400 footballs with zero production of lumber.
(b) Consumption of both products in autarky in the given case.
When U.S. consumes 500 footballs.
Fig 3
- If U.S. consumes 500 footballs, then in autarky, it can consume 5 tons of lumber as shown in the graph above.
- The quantity of lumber that can be consumed shall be calculated as follows:
When Canada consumes 1 ton of lumber.
Fig 4
- If Canada consumes 1 ton of lumber, then in autarky, it can consume 350 footballs as shown in the graph above.
- The quantity of football that can be consumed shall be calculated as follows:
Conclusion:
Thus, the quantity consumed of lumber in U.S. is 5 tons and of football in Canada is 350.
(c) Country that has absolute advantage in production of lumber.
- A country is said to have an absolute advantage over the production of a good when it produces higher quantity of that good as compared to the other country.
- In the given case, the maximum quantity of lumber produced by U.S. is 10 tons and by Canada is 8 tons. Hence, U.S. has the absolute advantage over the production of lumber.
Conclusion:
Thus, the U.S. has the absolute advantage in lumber production.
(d) Country that has comparative advantage in production of lumber.
A country is said to have a comparative advantage over production of a good when its opportunity cost to produce that good is less as compared to the other country.
In the given case, if U.S. produces 1 ton of lumber, then it has to sacrifice production of 100 footballs, whereas if Canada produces 1 ton of lumber, then it has to sacrifice production of 50 footballs.
Hence, Canada has a comparative advantage in production of lumber because the opportunity cost of producing 1 ton of lumber is less in Canada than in the U.S.
Conclusion:
Thus, Canada has the comparative advantage in lumber production.
(e) Footballs produced by U.S. and lumber produced by Canada.
U.S. has a comparative advantage in the production of footballs and Canada has a comparative advantage in the production of lumber.
Hence, the maximum quantity of football produced by U.S. for trade is 1,000 and the maximum quantity of lumber produced by Canada for trade is 8 tons.
Conclusion:
Thus, U.S. will produce 1,000 footballs and Canada will produce 8 tons of lumber.
(f) Graphs showing the given situation for U.S. and Canada.
U.S. consumes 500 footballs and 7 tons of lumber.
Fig 5
- The graph above shows the point B that denotes 500 footballs and 7 tons of lumber that falls outside the PPF.
- This implies that without international trade, it is not possible for U.S. to consume 500 footballs and 7 tons of lumber simultaneously.
Canada consumes 500 footballs and 1 ton of lumber.
Fig 6
- The graph above shows the point D that denotes 500 footballs and 1 ton of lumber that falls outside the PPF.
- This implies that without international trade, it is not possible for Canada to consume 500 footballs and 1 ton of lumber simultaneously.
Conclusion:
Thus, it is not possible for U.S. and Canada to achieve the given production level without trade.
Want to see more full solutions like this?
Chapter 20 Solutions
EBK ESSENTIALS OF ECONOMICS
- How is the mining industry related to other Canadian labour industries? Choose one other industry, (I chose Forestry)and describe how it is related to the mining industry. How do the two industries work together? Do they ever conflict, or do they work well together?arrow_forwardWhat is the primary, secondary, tertiary, and quaternary levels of mining in Canada For each level, describe what types of careers are the most common, and describe what stage your industry’s main resource is in during that stagearrow_forwardHow does the mining industry in canada contribute to the Canadian economy? Describe why your industry is so important to the Canadian economy What would happen if your industry disappeared, or suffered significant layoffs?arrow_forward
- What is already being done to make mining in canada more sustainable? What efforts are being made in order to make mining more sustainable?arrow_forwardWhat are the environmental challenges the canadian mining industry face? Discuss current challenges that mining faces with regard to the environmentarrow_forwardWhat sustainability efforts have been put forth in the mining industry in canada Are your industry’s resources renewable or non-renewable? How do you know? Describe your industry’s reclamation processarrow_forward
- How does oligopolies practice non-price competition in South Africa?arrow_forwardWhat are the advantages and disadvantages of oligopolies on the consumers, businesses and the economy as a whole?arrow_forward1. After the reopening of borders with mainland China following the COVID-19 lockdown, residents living near the border now have the option to shop for food on either side. In Hong Kong, the cost of food is at its listed price, while across the border in mainland China, the price is only half that of Hong Kong's. A recent report indicates a decline in food sales in Hong Kong post-reopening. ** Diagrams need not be to scale; Focus on accurately representing the relevant concepts and relationships rather than the exact proportions. (a) Using a diagram, explain why Hong Kong's food sales might have dropped after the border reopening. Assume that consumers are indifferent between purchasing food in Hong Kong or mainland China, and therefore, their indifference curves have a slope of one like below. Additionally, consider that there are no transport costs and the daily food budget for consumers is identical whether they shop in Hong Kong or mainland China. I 3. 14 (b) In response to the…arrow_forward
- 2. Health Food Company is a well-known global brand that specializes in healthy and organic food products. One of their main products is organic chicken, which they source from small farmers in the area. Health Food Company is the sole buyer of organic chicken in the market. (a) In the context of the organic chicken industry, what type of market structure is Health Food Company operating in? (b) Using a diagram, explain how the identified market structure affects the input pricing and output decisions of Health Food Company. Specifically, include the relevant curves and any key points such as the profit-maximizing price and quantity. () (c) How can encouraging small chicken farmers to form bargaining associations help improve their trade terms? Explain how this works by drawing on the graph in answer (b) to illustrate your answer.arrow_forward2. Suppose that a farmer has two ways to produce his crop. He can use a low-polluting technology with the marginal cost curve MCL or a high polluting technology with the marginal cost curve MCH. If the farmer uses the high-polluting technology, for each unit of quantity produced, one unit of pollution is also produced. Pollution causes pollution damages that are valued at $E per unit. The good produced can be sold in the market for $P per unit. P 1 MCH 0 Q₁ MCL Q2 E a. b. C. If there are no restrictions on the firm's choices, which technology will the farmer use and what quantity will he produce? Explain, referring to the area identified in the figure Given your response in part a, is it socially efficient for there to be no restriction on production? Explain, referring to the area identified in the figure If the government restricts production to Q1, what technology would the farmer choose? Would a socially efficient outcome be achieved? Explain, referring to the area identified in…arrow_forwardI need help in seeing how these are the answers. If you could please write down your steps so I can see how it's done please.arrow_forward
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education