Question 1 An economy produces capital and consumer goods. Discuss the impact on the PPF due to the following: (a) The discovery of a new source of oil (b) The unemployment rate in the economy has decreased by 5% (c) Improved technology that impacts only the production of capital goods.
Question 1
An economy produces capital and consumer goods. Discuss the impact on the
(a) The discovery of a new source of oil
(b) The
(c) Improved technology that impacts only the production of capital goods.
Question 2
Suppose there are two countries Peru and Japan that produce Food and Fuel. Peru can produce 7,523 units of Food or 17,853 units of Fuel using a labour force of 8000. Japan can produce 5,733 units of Food or 24,156 units of Fuel using a labour force of 5000.
(a) On two separate graphs sketch the initial PPF for the two countries with Food on the x-axis.
(b) If Japan and Peru employ half its workers to produce Food and half to produce Fuel how much of each good can they consume? Label this point A and A* respectively.
(c) Which country has the
(d) Which country has the
(e) Which good(s) should each country specialize in?
*(f) Calculate the
*(g) If the terms of trade is 2 to 1 in favour of the country with the comparative advantage in food. Determine the combination of the two goods that each country will consume after trade if the country with the comparative advantage in fuel imports 4000 units of food. Label this point B and B* respectively.
*h) Who gains from trade? Who loses? What is the impact if any on the world?
*(i) What should the terms of trade be to make trade beneficial for BOTH Japan and Peru? Explain.
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