Production Possibilities and Comparative Advantage
AutoSave OFF Unit 2 In-Class Exercise - FINAL (1) - Saved to my Mac Q Home Insert Draw Design Layout References Mailings Review View ? Tell me Share Comments Calibri Ligh... ~ 16 A" A Aa Po EV EVEVEE AaBbCcDdEe AaBbCcDdEe AaBbCcDc AaBbCcDdE AaBb( AaBbCcDdE AaBbCcDdEe Paste BI Uvab x x A LA Normal No Spacing Heading 1 Heading 2 Title Subtitle Subtle Emph Styles Dictate Pane |Unit 2-Production Possibilities and Comparative Advantage Production Coffee Tea Tea with new technology 10 2.7 3.4 4 4.5 5 . 2 A farmer has 100 acres of land and has to choose between planting coffee trees and tea bushes. Some of the land is better for producing tea, some for coffee. The table shows the possible combinations (in tons) of coffee and tea that can be produced. 1) Plot the farmer's PPF in the space above with tea on the horizontal axis. 2) Calculate the opportunity cost of producing the 3"d ton of tea. 3) Calculate the opportunity cost of producing the 6th ton of tea. 4) Calculate the opportunity cost of producing the 10th ton of tea. 5) What is happening to the opportunity cost of producing additional tons of tea? Why? 6) Is it possible to produce 4 tons of coffee and 6 tons of tea? Why or why not? 7) Assume the farmer is currently producing 4 tons of coffee and 5 tons of tea. How much does it cost the farmer to double his tea production? 8) Suppose a new technology is developed that increases tea production by 50%. Fill out the table and update the PPF. 9) Is it now possible to produce 4 tons of coffee and 6 tons of tea? Page 1 of 2 483 words English (United States) Focus E + 106%AutoSave OFF Unit 2 In-Class Exercise - FINAL (1) - Saved to my Mac Q Home Insert Draw Design Layout References Mailings Review View ? Tell me Share Comments Calibri Ligh... ~ 16 A" A Aa Po AaBbCcDdEe AaBbCcDdEe AaBbCcDc AaBbCcDdE AaBb( AaBbCcDdE AaBbCcDdEe Paste BI Uvab x x A LA Normal No Spacing Heading 1 Heading 2 Title Subtitle Subtle Emph Styles Dictate Pane Jeff Lorissa Tea 0.5 Coffee Now consider two farmers, Jeff and Lorissa, that can produce the above quantities of coffee OR tea. 10) What is the opportunity cost for each to produce tea? Coffee? 11) Who has a comparative advantage in producing tea? Why? 12) Suppose Jeff and Lorissa decided to trade coffee and tea with one another. Between what exchange ratios of coffee for tea (how many tons of coffee per ton of tea) would they both benefit from trade? Between what exchange ratios of tea for coffee (how many tons of tea per ton of coffee) would they both benefit from trade? 13) Which of the following is correct about comparative advantage? a. A country has the comparative advantage in a good if it can produce more of the good than another country. b. A country has the comparative advantage in the production of a good if it can produce the good at a lower opportunity cost than another country. Some countries will have a comparative advantage in everything. d. If a country has a comparative advantage it will always be a wealthy country. 14) The bowed out shape of the production possibility frontier implies that as production of one good a. decreases, society must give up increasing amounts of another good. decreases, society must give up constant amounts of another good. c. increases, society must give up decreasing amounts of another good. increases, society must give up increasing amounts of another good. Page 2 of 2 483 words English (United States) Focus E + 106%
