Question

A. In the context of the Standard Trade Model, describe the economic elements that dictate differences between the production possibilities frontiers of different countries. B. Suppose the U.S. produces clothing and food. The price of one pound of food is $2 while the price of one yard of cloth is $5. Write down the equation for the isovalue line given that the total production is V. C. Suppose that V=$100 and that the US produces 10 lbs of food. Draw the PPF, the isovalue line and indicate the production point given these parameters (Use Cloth on the vertical axis and Food on the horizontal axis). What is the slope of the isovalue line given the prices in part B? D. The U.S. has preferences such that they like to consume more cloth and less food. Suppose that the demand for food is 5 lbs of food. What would be the demand for cloth given a production value V=$100 and the price of one pound of food being $2 and price for cloth being $5. Describe what the U.S. will trade by calculating imports and exports. Illustrate in a graph by showing where the U.S. will consume and where they produce.

Answer 1

(A) The elements that can dictate differences between the production possibility Frontier of different countries can be the difference between the labour services, labour skills, land capital and technology between the countries.

(B) the equation for the ISO value line when the total production is equal to V , can be as follows=

V= Pc × Qc + Pf × Qf

Here ,

V=value output

Pc=price of cloth=$5 per yard

Qc=quantity of cloth

Pf=price of food=$2 per pound

Qf= quantity of food.

(C)(D) when the demand of food is is 5 lbs and v is equal to 100 dollars.

The equation will be in the following way=

V=Pc*Qc + Pf*Qf

100=5*Qc+ 2*5

Qc=18.

U.S. will export more of cloth and import more of food because the price of cloth is higher related to the price of food.

This will result in in a steep isovalue line and will lead to the higher indifference curve.

higher the relative price of cloth will lead to more calories of food that can be imported for every yard of cloth that is to be exported to the foreign countries.