Question
In: Economics
Suppose there are only two countries in our world Australia and New Zealand. In a year...
Suppose there are only two countries in our world Australia and New Zealand. In a year Australia can produce 100 Sheep or 500 BBQs while New Zealand can produce either 150 Sheep or 400 BBQs. What is the PPC curve? If they were to specialise who would and in what BBQs or Sheep? If both countries were to spend half the year producing each of their products- explain how specialization and trade would benefit each?
Solutions
Expert Solution
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production possibility curve
Production of half year
| Sheep | BBQ's | |
| NZ | 100 | 500 |
| AS | 150 | 400 |
Opportunity cost of production
in New Zealand
1 unit of sheep =500/100=5BBQs
so in New Zealand domestic market 1 sheep= 5 BBQs
similarly
1 unit BBQs = 100/500
1 unit BBQs =0.2 sheep
in Australia
1 unit of sheep =400/150
1 unit of sheep=2.67 unit BBQs
similarly
1 unit BBQs =150/400
1 unit BBQs =0.375 units of sheep
so New Zealand has an absolute advantage in the production of
BBQs
and Australia has an absolute advantage in the production of
sheep
in New Zealand domestic market is ready to exchange 5 BBQs in
exchange of only 1 sheep whereas in Australia domestic market one
unit sheep exchanged by only 2.67 so from free trade New Zealand
has a chance to exchange 1 unit of sheep in less than 5 unit of
BBQs whereas Australia has a chance to exchange 1 unit of sheep to
get BBQs more than 2.67units
so trade will benefit each of them
Rahul Sunny answered 2 years agoRelated Solutions
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