PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Question
Chapter 16, Problem 2P
(a)
To determine
Illustrate the
(b)
To determine
Describe the effects of industrialized economy in the developing economies consumption possibilities and illustrate in a diagram.
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Suppose that there are 10 workers in each
country and real GDP includes just televisions
and cell phones. The U.S. produces 40 cell
phones and 30 televisions, while South Korea
produces 20 cell phones and 15 televisions.
The two countries decide to specialize in the
production of just one good based on the
comparative advantage and trade the goods
each other. They want to sell only excess of
the units of the good they produced initially.
Please draws the post-trade Production
Possibility Set and mark the all combination
output at pre and post trade equilibrium.
What is the gains from trade for each
country?
(Exchange ratio in the market: 1 television = 3
cell phones)
Consider a straight-line PPF (production possibilities frontier) where lemonade is measured on
the vertical axis and shoes are measured on the horizontal axis. This nation does not trade with
any other nation. It can produce a maximum of 2000 units of lemonade if it produces no shoes;
it can produce a maximum of 400 shoes if it produces no lemonade.
Calculate the slope of the PPF.
(Carefully follow all numeric instructions. Include only numbers, a decimal point, and a negative sign as
needed. Round any intermediate steps to four decimal places and your final answer to two decimal
places.)
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A country produces two goods: coconuts and umbrellas. Their production possibilities frontier (PPF) places coconuts on the x-axis and umbrellas on the y-axis.
How would a drought that makes it difficult to grow coconuts but does not affect the production of umbrellas change the PPF?
Neither the value of the x-intercept nor the y-intercept would change
The value of the y-intercept would increase but the value of the x-intercept would not change
The value of the x-intercept would increase but the value of the y-intercept would not change
Both the value of the x-intercept and the y-intercept would increase
The value of the y-intercept would decrease but the value of the x-intercept would not change
The value of the x-intercept would decrease but the value of the y-intercept would not change
Chapter 16 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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- Q2. Suppose that there are two countries (A and B) and two goods (a labor-intensive good X, textile, and a capital-intensive good Y, electronics). The two countries have identical demand for the two goods but different labor and capital endowments. Suppose (Px/Py)A < (Px/Py)B in autarky. Identify the capital-abundant country and the labor-abundant country, respectively. Use a PPF-indifference-curve graph to identify the autarky equilibrium for country B. In the same graph, show country B's gains from trade when the two countries trade at a level of Px/Py that is between the two countries' autarky price ratios. In the above graph, identify the trade triangle (including export and import quantities) for country B. What would be the effect of trade on country B's relative nominal wage rate, i.e., the ratio of nominal wage rate relative to nominal capital rental rate (w/r)? Illustrate your answer graphically. Your answer:arrow_forwardBefore the first Gulf War, Kuwait had the capacity to produce a certain amount of oil from its oil wells. After the war, it found that capacity greatly diminished because the oil wells were on fire. Draw Kuwait's PPF before and after the war, assuming that the only two goods produced are oil and food. Further assume that setting the oil wells on fire did not affect Kuwait's ability to produce food. Explain why the PPF before the war is different from the PPF after the war.arrow_forwardIn 2018, sizeable lithium deposits were discovered in Germany. Suppose that prior to the discovery of new lithium deposits, Germany was operating on its PPF. The discovery of new lithium deposits in Germany _____. After this discovery, if Germany's production did not change, Germany would be operating _____. -SHIFTED Germany's PPF; efficiently -moved Germany ALONG its PPF; inefficiently -SHIFTED Germany's PPF; inefficiently -moved Germany ALONG its PPF; efficientlyarrow_forward
- There are two countries in the world economy: Home and Foreign. Home has 3000 units of labor available. It can produce two goods, coffee (C) and sugar (S). The unit labor requirement in coffee production at home, aLc, is 4, while the unit labor requirement in sugar production, aLs, is 10. Foreign has a labor force of 1600. Foreign’s unit requirement in coffee production, a*Lc, is 10, while the unit labor requirement in sugar production, a*Ls, is 2. Graph the production possibility frontier for both Home and Foreign. Use C in the vertical axis. What is the opportunity cost of coffee in terms of sugar in both Home and Foreign? Using the information (numbers) provided above, construct the world relative supply curve. Label it RS. The horizontal axis must show the world quantity of coffee relative to the world quantity of sugar, i.e., (Qc+Q*c)/(Qs+Q*s). The vertical axis must show the relative price of coffee with respect to the price of…arrow_forwardSuppose a country which produces only agricultural goods and electronic goods. Both goods use capital and labour as production inputs, however, the agricultural goods are assumed to be more labour-intensive. On three separate graphs, draw the “original” production possibility boundary (electronic goods on the horizontal axis, agricultural goods on the vertical axis) and illustrate each of the following situations: a. the country observes large increases in immigration; b. there is a technological improvement in the production of military goods only;c. a neighbouring country threatens to invade and the country responds by devoting more resources to military goods.arrow_forwardGermany and Sweden produce cars and kitchen appliances. Germany can produce 5 million cars per year if it produces only cars and no kitchen appliances, or 10 million kitchen appliances per year if it produces only kitchen appliances and no cars. Sweden can produce 1 million cars per year if it produces only cars and no kitchen appliances, or 3 million kitchen appliances per year if it produces only kitchen appliances and no cars. What is Germany’s opportunity cost of manufacturing 1 million cars per year? (Hint: Your answer should be in terms of millions of kitchen appliances per year.) What is Sweden’s opportunity cost of manufacturing 1 million cars per year? (Hint: Your answer should be in terms of millions of kitchen appliances per year.) What is Germany’s opportunity cost of manufacturing 1 million kitchen appliances per year? (Hint: Your answer should be in terms of millions of cars per year.) What is Sweden’s opportunity cost of manufacturing 1 million kitchen appliances per…arrow_forward
- Suppose that Cuba and Montserrat, two Carribian island economies start trading with each other. There are two goods in the economy: sugarcane and mangoes. The unit labour requirements for sugarcane are 5 and 4 respectively for Cuba and Montserrat. The unit labour requirements for mangoes are 20 and 10 respectively for Cuba and Montserrat. The total labour force in Cuba is 1000 and it is 500 in Montserrat. In which good(s) does Cuba have an absolute advantage? In which does it have a comparative advantage? Who will be exporting what in a free trade equilibrium? Draw the supply and demand schedules for mangoes relative to sugarcane for the economy as a whole i.e. taking both countries together. Note that the relative supply curve can be determined with precision while the representation of the demand curve is slightly random. Suppose that the relative price of mangoes is 3. Show that both countries gain from Trade. Determine the wage level in Cuba relative to the wage level in…arrow_forwardConnect Problem CP 20-05 (algo) If the fictitious country of Islandia puts all of its production resources into fish, it can produce 40 units of fish. If it puts all of its production resources into coconuts, it can produce 20 units of coconuts. If the fictitious country of Mountania puts all of its production resources into fish, it can produce 30 units of fish. If it puts all of its production resources into coconuts, it can produce 10 units of coconuts. Assume that both countries have constant cost functions for both products. Instructions: Round your answers to 2 decimal places. a. What is the opportunity cost of producing 1 unit of fish in Islandia? unit(s) of coconuts b. What is the opportunity cost of producing 1 unit of coconuts in Islandia? unit(s) of fish c. What is the opportunity cost of producing 1 unit of fish in Mountania? unit(s) of coconuts d. What is the opportunity cost of producing 1 unit of coconuts in Mountania? unit(s) of fish e. (Click to select) v has a…arrow_forward(Parts a-c) Assume two countries, Gisslovia and Gerardania, both have 1200 units of labor that can be used to produce food or clothing. In Gisslovia it takes 4 units of labor to produce one unit of food and 3 units of labor to produce one unit of clothing. In Geradania it takes 3 units of labor to produce one unit of food and 2 units of labor to produce one unit of clothing. a) If each country allocated one-half of its labor to food production how much food would be produced? b) If each country allocated one-half of its labor to clothing production how much clothing would be produced? c) Suppose Gisslovia only produced food. If Gerardania produced enough food to keep the total amount equal to part a, how much clothing would they produce?arrow_forward
- Suppose that a worker in Country A can produce either 6 units of corn or 2 units of wheat per year, and a worker in Country B can produce either 2 units of corn or 6 units of wheat per year. Each nation has 10 workers. Without trade, Country A produces and consumes 30 units of corn and 10 units of wheat per year. Country B produces and consumes 10 units of corn and 30 units of wheat. Suppose that trade is then initiated between the two countries, and Country A sends 30 units of corn to Country B in exchange for 30 units of wheat. Country A will now be able to consume a maximum of Select one: a.30 units of corn and 30 units of wheat. b.40 units of corn and 20 units of wheat. c.40 units of corn and 30 units of wheat. d.10 units of corn and 40 units of wheat.arrow_forwardAccumulation of capital and change in technology bring economic growth, which means that the PPF keeps shifting outward: Production that was unattainable yesterday becomes attainable today; production that is unattainable today will become attainable tomorrow. Why doesn’t this process of economic growth mean that scarcity is being defeated and will one day be gone? (Word count: 150 words max.)arrow_forwardImagine that you work for the World Bank and you have been called to Ghana to aid the new president to come up with a new international trade strategy. You are told that the new government is interested in moving away from agriculture and into manufacturing. To do so, the government wants to pursue a policy of import substitution industrialization (ISI). You are given a brief about Ghana highlighting the following points: About half of Ghana’s population depends on agriculture, but Ghana still imports some of its food. The majority of Ghana's people live in rural areas and exist on a subsistence way of life. Ghana has one of the highest rates of income inequality in the world. Nearly half of the population is employed in agriculture. QUESTION 1 Explain if the VER is likely to improve the average efficiency of Ghana’s farms? QUESTION 2 After a meeting with Ghana’s president, you learn that the government is also interested in repatriating migrants that went to European countries…arrow_forward
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