22 Jul WHICH COUNTRY IS RELATIVELY CAPITAL ABUNDANT?
candy) under conditions of constant opport Show more (3) Suppose that country A produces two goods (bread & candy) under conditions of constant opportunity costs. Given its resources the maximum bread that it can make is 1800 units and the opportunity cost of making 1 additional unit of candy is 4 units of bread. (a) What is the maximum amount of candy that it can produce? ($250) (b) Draw a graph of the PPF using the information above. On your graph place candy on the vertical axis and bread on the horizontal axis. Be sure to label the axes the numerical intercepts and the PPF. ($250) (c) What is the value of the slope? ($250) (d) What does this slope value represent? ($250) (5) Explain why indifference curves have the following properties: (a) downward slope ($250) (b) convex to the origin ($250) (c) higher curves reflect higher utility ($250) (d) non-intersecting ($250) 4) Suppose that a country produces two goods X and Y with two factors of production K (capital) and L (labor). The production technology for good X always requires 2 K or 1 L per unit of X produced while the production of good Y requires 1 K or 2 L per unit of Y produced. What does this imply about the shape of the countrys PPF? Include a diagram in your answer. ($1000) (7) A country produces 2 goods: Coffee and Tea. Assume that this country is at point A on its PPF which has a concave shape (increasing opportunity cost). The slope of the PPF is flatter (more horizontal) than the slope of the CIC touching the same point. Would the standard of living rise if the country moved away from point A down along the PPF to another point called B. Demonstrate graphically and explain your answer in 1-2 sentences. Place tea on the vertical axis and coffee on the horizontal axis ($1000) (8) Consider the following data on the factor endowments of two countries A and B: Countries Countries A B Labor Force 30 20 Capital Stock 12 10 (a) Which country is relatively capital abundant? ($250) (b) Which country is relatively labor abundant? ($250) (c) Suppose that the production of clothing is labor intensive relative to the production of computers. Which country will have comparative advantage in the production of clothing? ($250) (d) Explain your answer in part c. ($250) Show less
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