1. Draw a production possibilities curve for Mexico. 0 9 beer 2. Use the two above charts to answer...

Question

1. Draw a production possibilities curve for Mexico. 0 9 beer 2. Use the two above charts to answer the following questions. Assume no investment or other goods are produced or consumed. Assume relationships between pizza and beer are linear. a. What is the opportunity cost of pizza in terms of beer in the US? 1 pizza = 1 beer b. What is the opportunity cost of pizza in terms of beer in Mexico? 1 pizza = 3 beers c. If the US produced 6 pizzas, how much beer could it produce? 4 beers d. Assume that pre-trading, the US is producing 2 pizzas and 8 beers. Give an example of how trading with Mexico would make the US better off. US round pizza beer Trade XXXXXXXXXXpizza made in US XXXXXXXXXXbeers made in Mex XXXXXXXXXXII. Reading Economics for Life, Lesson 61, might be helpful in your answers. A. Do economists generally believe international trade to be a good thing? Why? B. Why is it that special interest groups are able to protect themselves from foreign trade to the determent of everyone else? C. Give an example of a free trade restriction that benefits most people in an economy why does it benefit most people? Yes, it increases the amount of stuff people get
	
Document Preview: Macro 201 Homework # 4 Name: ________________________ Quiz
I.
Production Possibility Charts 1.  _____
US Mexico 2.  _____
pizza beer pizza beer
 XXXXXXXXXXpizza
82 16 3
64 23
46 30
28
010
0
1.  Draw a production possibilities curve for Mexico. 0 9 beer
2.  Use the two above charts to answer the following questions.
Assume no investment or other goods are produced or consumed.
Assume relationships between pizza and beer are linear.
a.  What is the opportunity cost of pizza in terms of beer in the US?
1 pizza = 1 beer
b.  What is the opportunity cost of pizza in terms of beer in Mexico?
1 pizza = 3 beers
c.  If the US produced 6 pizzas, how much beer could it produce?
4 beers
d.  Assume that pre-trading, the US is producing 2 pizzas and 8 beers.
Give an example of how trading with Mexico would make the US
better off.
US
round pizza beer Trade
028
137
 XXXXXXXXXXpizza made in US
 XXXXXXXXXXbeers made in Mex
42 10
II.  Reading Economics for Life, Lesson 61, might be helpful in your answers.
A.  Do economists generally believe international trade to be a good thing?  Why?
B.  Why is it that special interest groups are able to protect themselves from foreign 
trade to the determent of everyone else?
C.  Give an example of a free trade restriction that benefits most people in an economy
why does it benefit most people? 
Yes, it increases the amount of stuff people get for the same amount of effort
Special interest gains big personally, while the benefits to individuals are diffuse
Lots of possible, infant industry, pollution, national defense etc

Robert · Accepted Answer

I. 
Answer to 1: 
US 
  
Mexico 
 Pizza  beer 
 
Pizza  beer 
10 0 
 
0 9 
8 2 
 
1 6 
2 8 
 
2 3 
0 10 
 
3 0 
 
a)
Answer to 2: 
a. 
To produce 10 units of pizza, US will have to forgone 10 units of beer. So opportunity cost of 
pizza in terms of beer in the US = 10/10 = 1 
b. 
To produce 3 units of pizza, Mexico will have to forgone 9 units of beer. So opportunity cost of 
pizza in terms of beer in the Mexico = 9/3 = 3 
c. 
0, 9 
1, 6 
2, 3 
3, 0 0
2
4
6
8
10
0 1 2 3 4
B
e
e
r 
Pizza 
Mexico Production Possibility 
frontier 
Mexico production
possibility frontier
If US produced 6 pizzas, it could produce 4 beers. 
d. 
After trade relative price of pizza would be between opportunity costs of pizza in two countries 
i.e. it would be between 1 and 3. Suppose world relative price of pizza be 2 i.e. for one unit of 
pizza traded, US will get 2 units of beer.

1. Draw a production possibilities curve for Mexico. 0 9 beer 2. Use the two above charts to answer the following questions. Assume no investment or other goods are produced or consumed. Assume...

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