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ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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
Transcribed Image Text:Suppose the following table provides the production possibilities for the only two countries in the world.
These two countries can produce only these two goods. Assume resources are identical in production.
Use this information to show how trade benefits the world and the two individual countries. Also
assume the countries are able to produce with no idle resources and no production mistakes.
Silver
Diamond
Australia
180
270
Canada
180
90
a) Illustrate the production possibilities for these two countries by drawing their PPF, with silver
measured on the horizontal axis and diamonds measured on the vertical axis. (Make sure you use
a ruler to draw PPFS)"
b) Show the actual production levels of each country assuming the countries are self-sufficient and
don't trade with each other and allocate half of their resources to the production of each good. Label
this point a on the graphs.
c) Who has the absolute advantage in producing silver and who has the absolute advantage in
producing diamonds? Explain how you determined this.
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