PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Chapter 16, Problem 4P
(a)
To determine
Illustrate the
(b)
To determine
Describe the consumption possibilities for Costa Rica in the case of open economy.
(c)
To determine
Explain the answer based on the assumption that 1 computer traded for 200 pounds of coffee on world markets.
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Q32
Consider the Production Possibility Frontiers of two countries, Australia and Brazil. Assume both have linear PPFs and the two countries both produce the same two goods: fruits and grain.
Given its resources, Australia can produce either 2 units of grain per day or 1 unit of fruits; Brazil can produce either 5 units of grain or 4 units of fruits. (You may, for your own use, find it helpful to draw the Production Possibilities Frontiers for each country, though these won't be included in the answers you provide in you online responses.)
a. If there were no trade, what would be the local price of fruits in each country, measured in units of grain?
b. If trade is allowed, which country will export fruits and which country will export grain (if any)?
c. What are the gains from trading a unit of fruit if the international price of fruit is equal to the average of the local prices in the two countries?
d. How are the gains from trade distributed? Comment on why the benefits…
Suppose that in the country of England, two goods can be produced on available agricultural land: wine and wool. Suppose that the opportunity costs of production are constant, so that the PPF is a straight line. Further, when all resources are devoted to wine production, England can produce 200 (thousand) barrels. When all resources are devoted to wool production, England can produce 400 (thousand) bushels of wool.
Suppose that a bushel of wool could be traded for a barrel of wine, one-for-one, on the international market. Draw a diagram illustrating the original situation, and this new situation, with wool on the X-axis and wine on the Y-axis.
With its given resources, Nicaragua can produce either 20 thousand pounds of chicken or 80 thousand pounds of quinoa per year. Costa Rica can produce either 100
thousand pounds of chicken or 200 thousand pounds of quinoa per year.
Suppose the countries completely specialize and they decide to trade 14 thousand pounds of chicken for 42 thousand pounds of quinoa.
After trade, Nicaragua will consume
thousand pounds of chicken and
thousand pounds of quinoa.
After trade, Costa Rica will consume
thousand pournds of chicken and
thousand pounds of quinoa.
Round to the nearest whole number.
Chapter 16 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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