Question

Question 1

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.

b-Which country has the absolute advantage in producing jets? Explain.

c-Which country has the absolute advantage in producing helicopters? Explain. (3pts)

d-What is the U.S’s opportunity cost for 1 jet? Show all calculations clearly.

e-What is the U.S’s opportunity cost for 1 helicopter? Show all calculations clearly.

Answer 1

COUNTRIES: U.S. & BRAZIL

GOODS: JETS & HELICOPTERS

THE TABLE SHOWS MAXIMUM AMOUNT OF TWO GOODS THAT CAN BE RODUCED EFFICIENTLY, WHEN THE PRODUCTION OF OTHER GOOD IS ZERO

Countries\ Goods	Maximum Jets	Maximum Helicopters
U.S.	75	100
Brazil	30	90

Answer a) Assuming that each of these countries produces only two goods: Jets and helicopters. For both countries the quantity of jets produced is on the vertical axis and the quantity of helicopters produced is on the horizontal axis.The ppf for both the countries will look like as shown in figure below.

Answer b) Now to find which country has absolute advantage in production of jets. For this purpose we will use the table which Column 2 which shows the maximum amount of jets that can be produced efficiently by each country respectively given their resource endowments and assuming zero production of helicopters.

So for U.S. the maximum amount of jets that can be produced efficiently are 75 jets given their resource endowments and zero production of helicopters whereas for Brazil the maximum amount of jets that can be produced efficiently are 30 jets given their resource endowments and zero production of helicopters. Clearly U.S. has a absolute advantage in production of jets as it can produce more jets than brazil for given resources.

Answr c) Now to find which country has absolute advantage in production of helicopters. For this purpose we will use the table which Column 3 which shows the maximum amount of helicopters that can be produced efficiently by each country respectively given their resource endowments and assuming zero production of jets.

So for U.S. the maximum amount of helicopters that can be produced efficiently are 200 helicopters given their resource endowments and zero production of jets whereas for Brazil the maximum amount of helicopters that can be produced efficiently are 100 helicopters given their resource endowments and zero production of jets. Clearly U.S. has a absolute advantage in production of helicopters as it can produce more helicopters than brazil for given resources.

Answer d) Now to find U.S.'s opportunity cost for 1 jet

= Total number of Helicoters that can be produced/Total number of jets that can be produced

= 200/75

= 2.67 units of helicopters

Hence U.S.'s opportunity cost for 1 jet is 2.67 units of helicopters

Answer d) Now to find U.S.'s opportunity cost for 1 helicopter =

Total number of jets that can be produced/Total number of helicopters that can be produced

=75/200

=0.375 units of jets

Hence U.S.'s opportunity cost for 1 helicopter is 0.375 units of jets