Question

# Let the production possibilities frontier for the New England colonies be given by f =30 -...

Let the production possibilities frontier for the New England colonies be given by f =30 - 3c

where f is units of fish and c is units of crops. Likewise, let the production possibilities frontier for the Middle Atlantic colonies by given by f = 15 - .75c .

On a single graph, draw the PPFs for the New England and Middle Atlantic colonies. You may assume that f and c are restricted to being greater than or equal to zero.

Do the New England colonies or the Middle Atlantic colonies have a comparative advantage in fish? Use the relative price of crops in terms of fish (that is, the slope of each PPF) to prove your answer. Given your answer, which region has a comparative advantage in crops?

Suppose that each set of colonies produces only the good in which they have a comparative advantage. How many units of fish and how many units of crops will be produced?

Suppose that the New England colonies and the Middle Atlantic colonies agree to trade at a price of 1.5 fish per unit of crops. Assuming that each region only produces the good for which it has a comparative advantage, show graphically that at this price both regions consume 10 units of crops and 15 units of fish. Was this allocation feasible for either region prior to trade?

#### Earn Coins

Coins can be redeemed for fabulous gifts.