Question

1. In the space below you will draw two graphs, side by side. The graph on the left will show the production possibilities frontier (PPF) for the U.S. and the graph on the right will show the PPF for Brazil. Assume that each of these countries produces only two goods: Jets and helicopters. For both countries you will show the quantity of jets produced on the vertical axis and the quantity of helicopters produced on the horizontal axis.

Draw a straight-line production possibilities frontier (PPF) for the U.S. indicating that it can efficiently produce 75 jets if its production of helicopters is zero, and 100 helicopters if its production of jets is zero. ( Draw also a straight-line production possibilities frontier (PPF) for Brazil indicating that it can efficiently produce 30 jets if its production of helicopters is zero, and 90 helicopters if its production of jets is zero

1. What is Brazil’s opportunity cost for 1 jet? Show all calculations clearly.

2. What is Brazil’s opportunity cost for 1 helicopter? Show all calculations clearly.

3. Which country has the comparative advantage in producing jets? Why do you think so?

Answer 1

Answer: a)Here we can see that Brazil will have to give up 30 jets for 90 helicopters. So to have an extra jet it will have to give up 90/30= 3 helicopters. So the opportunity cost of 1 jet is 3 helicopters.

B) Next, Brazil will have to give up 90 helicopters for 30 jets. Then to have an extra helicopter it will have to give up 30/90= 0.33 jets. So the opportunity cost of one helicopter is 0.33 jets.

C) We just saw that for Brazil the opportunity cost of 1 jet is 3 helicopters. For US, we can see that US will have to give up 75 jets for 100 helicopters. So to have an extra jet it will have to give up 100/75= 1.33 helicopters. As a result the opportunity cost of US for jet is 1.33 helicopters. Since the opportunity cost of US is lower than that of Brazil, so US hashas a comparative advantage in producing jets.