Question 1
(1.5 points)
The table below shows the yearly output of flowers or dishes per worker in three European countries. Please use this information when answering the questions below.
Netherlands
Germany
Flowers (per worker per year)
100
120
Dishes (per worker per year)
40
200
Workers
4
6
a. Draw the Netherlands’ PPF with dishes on the horizontal axis.
a. Can the Netherlands consume 180 dishes? Explain graphically.
. why not? Explain your reasoning.
c. Assume that the world price is set at 2 flowers/dish. Add the Consumption Possibilities Frontier to the PPF graph for the Netherlands assuming they trade in the world market.
d. Can Netherlands consume 180 dishes with trade? Explain graphically.
Question 2
(1 points)
Zack is a farmer. Suppose that he can produce corn and beans. In one season, he can produce a max of 100 units of corn (and 0 units of beans) or a max of 100 units of beans (and 0 units of corn).
a. Draw Zack’s PPF with beans on the x-axis, assuming that the opportunity cost of corn is strictly increasing
Suppose that Zack trades in a competitive market at a price of 1 corn per 1 bean.
a. Mark Zack’s production point on the PPF. Explain your choice
HINT- note that the slope at the point where the production possibilities frontier intersects with the y (corn) axis is 0 and that the slope at the intersection point with the x (bean) axis is infinite. If the opportunity cost of corn is strictly increasing from 0 to infinite, this means that there is a point on the production possibilities frontier where the slope is 1.
a. Draw Zack’s consumption possibilities frontier.
a. Assume that Zack is only interested in consuming beans. Will he import or export beans? Show this import/export on your graph.
The United States has been manufacturing cars and toys for around 100 years. During this time, technology has changed and so have the world relative prices of cars and toys. This question asks you to apply our model of the production possibilities frontier as a tool for analyzing these changes and their implication for well-being. In your answer, please refer to the graph below.
a. State which of the points are: Production Efficient, Attainable, Unattainable, and Production Inefficient.
a. Is the opportunity cost of producing cars higher or lower at point A vs. Point B? Explain why.
a. Suppose that the US produces at point C in 2018 and that it is production efficient to do so. Draw a PPF curve for the year 2018, assuming that there was technological improvement in the production of cars between 1970 and 2018, but not in the production of toys.
a. In 2018 the United States produced at point C. Moreover, we know that they imported cars and exported toys. Add a consumption point to your graph that is consistent with these facts. Call this point X.
a. Using your answer from the previous question, mark the quantity of cars the United States imports and the quantity of toys that the United States exports in 2018.
a. Add a consumption possibilities frontier that is consistent with this.
a. Is the United States better off at point B or at point X? Explain.