Problem 16-02 The accompanying hypothetical production-possibilities tables are for New Zealand and Spain. Each country can produce apples and plums. New Zealand's Production-Possibilities Table (Millions of Bushels) Production Alternatives Product Apples 48 Plums Spain's Production-Possibilities Table (Millions of Bushels) Production Alternatives Product R 5 Apples 40 Plums 20 Plot the production-possibilities data for each of the two countries separately. Instructions: 1. Use the tools provided (PPC NZ, PPC SP. plot 4 points each) to draw the PPC curves. 2. To earn full credit, you must correctly plot all the points for each line. Your Graph Score: 0% Your Graph Score: 0% New Zealand Spain 80 100 PPC NZ 80 PPC SP 60 60 Apples (millions of bushels) 40 Apples (millons of bushels) 40 20 20 10 15 0 25 30 35 40 10 20 40 50 60 70 80 Plums (millions of bushels) Plums (millions of bushels)Referring to your graphs, answer the following: a. What is each country's cost ratio of producing plums and apples? New Zealand's cost of producing one plum is 4 apple(s). Spain's cost of producing one plum is 1 apple(s). b. Which nation should specialize in which product? |New Zealand should produce apples, and Spain should produce plums. c. Show the trading possibilities lines for each nation if the actual terms of trade are one plum for two apples. (Plot these lines on your graph.) d. Suppose the optimum product mixes before specialization and trade were alternative B in New Zealand and S in Spain. What would be gains from specialization and trade? Gains = 20 @ apple(s) and 10 @ plum(s)a. To find the cost ratio of producing plums and apples for each country, we need to lock at the slopes of their production possibility frontiers (PPFs). The slope of the PPF represents the opportunity cost of producing one more unit of a good in terms of the other good. Let's say the slope of Mew Zealand's PPF is -2 (it takes 2 apples to produce 1 plum) and the slope of Spain's PPF is -0.5 (it takes 0.5 apples to produce 1 plum). k. New Zealand should specialize in apples because it has a comparative advantage in producing them (lower opportunity cost), while Spain should specialize in plums for the SAMeE reason. c. To plot the trading possikilities lines, we need to find the exchange rate of plums for apples. If one plum exchanges for two apples, then for Mew Zealand, the opportunity cost of one plum iz 2 apples, and for Spain, it's 0.5 apples. The trading possibilities lines will e straight lines with slopes equal to the reciprocal of the exchange rate. For Mew Zealand: 1 plum = 2 apples, so the slope of the line will be -0.5. For Spain: 1plum = 0.5 apples, so the slope of the line will be -2. d. If the optimum product mixes before specialization and trade were alternative B in New Zealand and 5in Spain, and after specialization and trade, Mew Zealand gains 20 apples and Spain gains 12 plums, it means both countries have moved to a point beyond their original production possibility frontiers due to specialization and trade