Question

1. You have the following information concerning the production of wheat and cloth in the U.S. and England:

Labor hours required to produce 1 unit:

England U.S. Wheat 2 1 Cloth 6 5

a) What is the opportunity cost of producing a unit of wheat in England? In the U.S.? [HINT: Your answer must be in the form of units of the other good given up, e.g. “the opportunity cost of 1 more unit of wheat is 7 units of cloth given up.”]
b) Which country has an absolute advantage in producing wheat? In producing cloth?

c) Which country has a comparative advantage in producing wheat? In producing cloth? d) Which country should specialize in producing wheat? In producing cloth?
e) Assume that the U.S. has 100 labor hours available, while England has 50.

i) Draw a graph illustrating the PPF for the U.S. (with wheat on the
vertical axis), indicating clearly the x- and y-intercepts, and the slope of the PPF

ii) Draw a graph illustrating the PPF for the England (with wheat on the vertical axis), indicating clearly the x- and y-intercepts, and the slope of the PPF

Answer 1