3. Specialization and production possibilities Suppose Poland produces only cars and camcorders. The resources that are used in the production of these two goods are specialized-that is, some inputs are more suitable for producing cars than for producing camcorders, whereas others are more suitable for producing camcorders than cars. The shape of Poland's production possibilities frontier (PPF) should reflect the fact that as Poland produces more camcorders and fewer cars, the opportunity cost of producing each additional camcorder The following graphs show two possible PPFs for Poland's economy: a straight-line PPF (PPF) and a bowed-out PPF (PPF₂). CARS PPF₁ Graph 1 ? CARS PPF₂ Graph 2 ?

3. Opportunity Cost Ana and Dina are roommates. They spend most of their time studying (of course), but they leave some time for their favorite activities: making pizza and brewing root beer. Ana takes 3 hours to brew a gallon of root beer and 2 hours to make a pizza. Dina takes 7 hours to brew a gallon of root beer and 5 hours to make a pizza. Ana's opportunity cost of brewing a gallon of root beer is    , and Dina's opportunity cost of brewing a gallon of root beer is    .       has an absolute advantage in brewing root beer, and    has a comparative advantage in brewing root beer.   If Ana and Dina trade foods with each other,    will trade away pizza in exchange for root beer.   The price of pizza can be expressed in terms of gallons of root beer. The highest price at which pizza can be traded that would make both roommates better off is    of root beer, and the lowest price that makes both roommates better off is    of root beer per pizza.

Suppose that the US economy produces agricultural products (A) and manufactured products (M). Explain and graphically illustrate the impact of each of the following events on the economy’s production possibilities curve (draw a new PPF for each, placing M on the vertical axis). a. Scientists develop a new fertilizer that will increase the productivity of land on which agricultural products are grown. b. The price of manufactured goods increases. c. Russian attacks on Ukraine devastate the Ukrainian wheat crop, increasing their demand for American wheat. d. The government increases taxes on manufactured goods.

2. Suppose that Happy Land produces only two goods-food and suntan oil. Its production possibilities are: Food (pounds per month) 300 200 100 0 Active Land also produces only food and suntan oil, and its production possibilities are: Food (pounds per month) 150 100 50 0 Draw the two PPFs Suntan oil (gallons per month) 0 50 100 150 Suntan oil (gallons per month) 0 100 2000 300 a. What are the opportunity costs of food and suntan oil in Happy Land? b. Why are the opportunity costs the same at each output level? c. What are the opportunity costs of food and suntan oil in Active Land? d. If each nation specialized where they have a comparative advantage; and then traded, find the acceptable ranges for trade. 1 pound of food would have to trade between which values of suntan oil? 1 pound of suntan oil would have to trade between which values of food? e. If each nation produces where they have a comparative advantage, and the terms of trade are 50 pounds of food for 75 gallons of suntan oil,…

7. Specialization and production possibilities Suppose Scotland produces only smart watches and cell phones. The resources that are used in the production of these two goods are not specialized -that is, the same set of resources is equally useful in producing both cell phones and smart watches. The shape of Scotland's production possibilities frontier (PPF) should reflect the fact that as Scotland produces more cell phones and fewer smart watches, the opportunity cost of producing each additional cell phone The following graphs show two possible PPFs for Scotland's economy: a straight-line PPF (PPF₁) and a bowed-out PPF (PPF2). SMART WATCHES PPF ₁ Graph 1 CELL PHONES ? SMART WATCHES PPF₂ Graph 2 CELL PHONES (?) Based on the previous description, the tradeoff Scotland faces between producing cell phones and smart watches is best represented by

Question 2. Imagine the country of Zed, which has the following production possibilities curve: Tanks          Noodles          0            51     100            45                        200            38    300            30    400            21    500            11    600              0 a) What is the opportunity cost between tanks and noodles?  Is it constant?Graph the ppc. b) True, false, uncertain, and explain: “This economy should produce 30 noodles and 300 tanks because that is the most even distribution of  resources between the two goods.”

With 1 resource unit 2 countries, A and B, are each capable of producing 2 goods, X and Y, according to the following production possibilities schedule.   Country / good x y A 5 8 B 6 10 Develop a production possibilities graph for country A that shows with specialization and trade country A can consume outside of its PPF

Figure 3: Two Production Possibilities Frontiers Britain United States 100 30 90 200 Assume the world consists hypothetically of only two countries that can produce only two products, in the same period, with the same fixed amount of resources, with the same highest technologies available worldwide, and with the simplified assumption of producing "along" a linear production possibility frontier (PPF). Figure 3 provides the production possibilities frontiers between Textiles (T) and Soybeans (S) in the United States (A) and Britain (B). Referring to Figure 3, which of the following is true according to David Ricardo's Comparative Advantage Theory? Only the United States can benefit from engaging in free international trade with Britain. Neither Britain nor the United States can benefit from engaging in free international trade. Both Britain and the United States can benefit from engaging in free international trade. None of the above.