Question

Question 1: We have the following information about an economy. Use this information to answer the questions below.

Table 1: Number of Cars and Bushels of Wheat Possible for an Economy to Produce

Point	Number of Cars (in 10,000s)	Bushels of Wheat (in 100,000s)
A	0	700
B	60	630
C	120	530
D	180	400
E	240	220
F	300	0

1. Use the information in the table to graph a production possibilities curve for this economy. Put cars on the vertical axis and wheat on the horizontal axis. Label the points A through F on the graph.
2. Using the information in the table, demonstrate/prove that this economy faces increasing opportunity cost. Explain, i.e. how much wheat must we give up each time we produce time we produce 600,000 more cars?
3. Can this economy produce the combination of 18,000,000 cars and 420,000,000 bushels of wheat? Explain.
4. What point on the curve is productively efficient for this society? Explain.
5. What point on the curve is allocatively efficient for this society? Explain.

Question 2: Assume that Andia and Zardia can switch between producing wheat and producing beef at a constant rate.

	Production amounts for 1 day
	Bushel of Wheat	Pound of Beef
Andia	20	12
Zardia	15	10

1. According to the table of information above, who has the absolute advantage in making wheat? Explain.
2. According to the table of information above, who has the absolute advantage in making beef? Explain.
3. Use the information in the new table to compute who has the comparative advantage in wheat and who has the comparative advantage in beef. Show your work.
4. Based on your answer to #4, who should produce wheat and who should produce beef?
5. Explain how this example shows that when each person focuses on their own self-interest, both parties are made better off.

Answer 1

Answering only first Ques

1)a) PPF graph

b) yes, Economy faces Increasing opportunity cost

For additional 60,000 cars,

The amount of wheat given up rises from

70,00000 to 100,00000 to 130,00000 to 180,00000 to 220,00000

So opportunity cost is rising

C) no this combination is not attainable

Bcoz with 180, max W = 400

D) every point on curve is effecient

E) all Allocations are effecient, bcoz PPF is locus of all effecient combinations, that could be Produced with available resources