02_PPF and Trade_Stu

The slope of the PPF indicates the amount of wheat that must be given up to obtain additional units of computers, specifically showing that the opportunity cost of a computer is the amount of wheat sacrificed.

______ hours of labor.

a) expand the production possibilities frontier.

It is determined by having the same output but a lower opportunity cost.

Producing one computer requires 100 hours of labor.

The terms of trade (TOT) is 5 oz of meat = 15 oz of potatoes.

It is the price at which goods are traded.

Principle 5: Trade can make everyone better off.

A PPF is a curve that illustrates the maximum feasible amount of two goods that an economy can produce with available resources and technology.

Points on the PPF represent possible and efficient production where all resources are fully utilized.

Potatoes and meat.

Terms of trade must be mutually beneficial to both trading countries.

The farmer chooses to produce and consume 0 oz of meat and 32 oz of potatoes.

The rancher chooses to produce and consume 0 oz of potatoes and 24 oz of meat.

4 oz of Potatoes

Point F represents 100 computers and 3000 tons of wheat.

The producer who has the lower opportunity cost of producing a good is said to have a comparative advantage in producing that good.

24 oz of meat and 48 oz of potatoes.

The Farmer specializes in producing potatoes only.

With trade, the farmer can produce and consume more than without trade, leading to increased overall consumption.

The Rancher partially specializes in producing meat.

The country with the lower opportunity cost will be the exporter of the good.

The cost of white socks in Boston is determined by the opportunity cost of producing them compared to red socks.

The PPF illustrates concepts such as efficiency, inefficiency, economic growth, and the impact of resource allocation on production capabilities.

Comparative advantage is the ability of an individual or group to carry out a particular economic activity at a lower opportunity cost than another individual or group.

By specializing and trading with others.

A greater quantity and variety of goods and services.

Point G may represent a combination that is achievable within the economy's production capabilities, depending on the PPF curve.

Specialization refers to the process where individuals or countries focus on producing a limited range of goods or services to gain efficiency and improve productivity.

The Farmer's outputs are 0 oz of meat and 32 oz of potatoes.

4 oz of potatoes

They can consume outside the PPF (A* and B*) with trade.

4 oz of potatoes < TOT < 2 oz of potatoes

Point B represents the production of 1,000 computers and 2,000 tons of wheat.

Comparative advantage and differences in opportunity costs.

Whenever they have differences in opportunity costs.

Production decreases, so the PPF shifts inward.

If the economy produces all glasses, it does not need any cows and production is maximized for glasses.

The PPF would shift inward, indicating a decrease in the economy's capacity to produce milk due to the loss of cows.

The rancher experiences an increase in consumption.

More computers, more wheat, or any combination in between.

Yes, it can shift inward under certain circumstances.

Gains from trade occur when countries or individuals specialize in the production of goods where they have a comparative advantage, allowing them to trade for other goods and achieve a higher overall level of consumption.

8 working hours.

2 oz of potatoes

The PPF shows the trade-offs between the production of two goods, highlighting opportunity costs.

______ has an absolute advantage in the production of ____ types of socks.

Because this ratio reflects their opportunity costs and mutual benefits.

At point D, the maximum number of computers produced is 4,000, with 3,000 tons of wheat.

Countries trade with one another to take advantage of differences in resources, technology, and production capabilities, leading to increased efficiency and access to a greater variety of goods.

d) not feasible with available resources.

Farmer specializes in producing potatoes and Rancher specializes in producing meat; by trading, both benefit from their specialization.

The PPF shifts outward.

0, 12, 24

0.25 oz of Meat

It measures the trade-off between the two goods that each producer faces.

The Farmer has a comparative advantage in the production of potatoes.

The production possibilities include 32 oz of meat or 48 oz of potatoes, or 24 oz of meat or 32 oz of potatoes.

The opportunity cost is 0.25 oz of meat.

The Rancher's outputs are 18 oz of meat and 12 oz of potatoes.

To maximize their output and efficiency based on their comparative advantages.

At point C, 3,000 tons of wheat can be produced along with 2,000 computers.

The city that can produce more of a color sock with the same resources has the absolute advantage.

Both countries obtain consumption outside their PPF.

Both countries can be self-sufficient, spending half their time on meat production and the other half on potatoes, consuming what they produce without trade.

c) Those goods in which the nation does not have a comparative advantage

FRANCE

They divide their time equally between raising cattle and growing potatoes for their own consumption.

Trade can make everyone better off.

The opportunity cost of producing 1 oz of meat is 4 oz of potatoes.

The PPF graph illustrates the trade-off between producing computers and wheat based on labor hours.

Being able to produce a good with fewer inputs.

Both goods beyond their individual production capabilities.

Society faces a tradeoff: getting more of one good requires sacrificing some of the other.

Specialization in production allows for more efficient use of resources.

______ has a comparative advantage in producing white socks.

Relying on coffee from Kenya, a dress shirt from China, a cell phone from South Korea, and hair gel from the USA.

Countries should specialize in the production of goods they have a comparative advantage in and then trade with each other, resulting in mutual benefits.

The assumptions include two goods: computers and wheat, and one resource: labor, measured in hours, with the economy having 50,000 labor hours available per month for production.

Comparative Advantage encourages individuals and nations to specialize in the production of goods and services where they have a lower opportunity cost, leading to increased efficiency and productivity.

Producing one ton of wheat requires 10 hours of labor.

Being able to produce a good at a lower opportunity cost.

0.5 oz of Meat

0, 4, 8

The economic 'pie' grows and trade can make everyone better off.

18 oz of meat.

Point A represents the production of 500 computers and 0 tons of wheat.

They agree to exchange 5 oz of meat for 15 oz of potatoes.

The cost of white socks in Chicago is determined by the opportunity cost of producing them compared to red socks.

_________________________ , because it has the comparative advantage in white socks, while _____________________________________ , which is Chicago's comparative advantage.

The PPF illustrates opportunity cost by showing the trade-offs between the production of two goods; moving along the curve indicates that producing more of one good requires sacrificing some quantity of the other good.

The producer that can produce more output using the same amount of input is said to have an absolute advantage in producing that good.

Point F requires 0 hours of labor.

The terms of trade (TOT) is 5 oz of meat = 15 oz of potatoes.

They spend a total of 8 hours on production.

Gains from trade refer to the increase in consumption that occurs when trade is introduced.

Differences in opportunity costs.

The opportunity cost of an item is what must be given up to obtain that item.

Points above the PPF signify production levels that are not possible or feasible with the existing resources.

The TOT must be greater than 2 oz and less than 4 oz of Potatoes.

16, 32

The slope of the PPF tells you the opportunity cost of one good in terms of the other.

Countries must be able to sell their goods at a price higher than their domestic opportunity cost.

_______ has a comparative advantage in producing red socks.

Trade can occur at any price between __________________ __________________________.

The PPF is a graph that shows the combinations of two goods that an economy can possibly produce given the available resources and technology.

Comparative Advantage is the ability of an individual or group to carry out a particular economic activity more efficiently than another activity.

Point F represents a combination of goods that may be outside the production capabilities of the economy, indicating it is not feasible.

Because they are better off when they specialize and trade with others.

An absolute advantage.

2, 48

True

2 oz of Potatoes

48 oz of potatoes.

Point E indicates the production of 5,000 computers and 6,000 tons of wheat.

The range of prices for trade will be between the opportunity costs of producing the socks in each city.

Absolute advantage refers to the ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group.

Opportunity cost is whatever must be given up to obtain some item.

The Rancher has a comparative advantage in the production of meat.

With trade, the rancher can produce and consume more than without trade.

Yes, a country can be economically self-sufficient.

Moving along a PPF involves shifting resources (e.g., labor) from the production of one good to the other.

1 oz of Meat = 3 oz of Potatoes is a mutually beneficial terms of trade.

0.25 oz of meat < TOT < 0.5 oz of meat

Each city will export the color sock for which it has a comparative advantage.

The principle of comparative advantage explains that if countries specialize in producing goods where they have a lower opportunity cost, they can trade to obtain goods at a lower cost than if they produced everything themselves, leading to overall gains from trade.

TOT must lie between the domestic opportunity costs of production of two countries.

PPF stands for Production Possibilities Frontier.

The opportunity cost of producing 1 oz of potatoes is 0.25 oz of meat.

Yes, it can explain the trade dynamics.

The opportunity cost of producing 1 oz of potatoes is the inverse of the opportunity cost of producing 1 oz of meat.

The PPF illustrates the maximum possible production combinations of Meat and Potatoes for both the Farmer and Rancher.

The opportunity cost is 0.5 oz of meat.

The country will not buy the goods if the price is higher than their domestic opportunity cost.

The Production Possibilities Frontier (PPF) is a curve that illustrates the maximum feasible amount of two goods that a country can produce with available resources and technology.

Points under the PPF indicate possible but inefficient production, where some resources are not fully utilized (e.g., workers unemployed, factories idle).

A potato farmer and a cattle rancher.

The two goods are Meat and Potatoes.

Terms of trade is the price at which goods are exchanged between countries.

5 oz of Meat can be exchanged for 15 oz of Potatoes.

The city that has a lower opportunity cost for producing a color sock has the comparative advantage.

To construct the PPF of a hypothetical economy, identify the maximum output combinations of two goods that can be produced with given resources and technology, and plot these combinations on a graph.