Question

Consider two contries that F produce two goods X and Y defines as follows. HOME FOREIGN X= Alx a=10 X=aLX,a=5 Y=bLy,b=10 Y=Bly,B=10 LH=10 LF=10 Describe the PPF for each country ?

Answer 1

Home: X = aL_x, a = 10 ; Y = bL_Y, b = 10

L_H = 10

If all the labour is employed to produce X, then X = 10 * 10 = 100

If all the labour is employed to produce Y, then Y = 10 * 10 = 100

Total Produce, T_H = aL_x + bL_Y

Hence, the PPF will be a downward sloping straight line with slope = - (b/a) = - (10/10) = -1

Vertical Intercept as well as horizontal intercept will be equal to 100.

On the other hand,

For foreign country: X = AL_x, A = 5 ; Y = BL_Y, B = 10

L_F = 10

If all the labour is employed to produce X, then X = 5 * 10 = 50

If all the labour is employed to produce Y, then Y = 10 * 10 = 100

Total Produce, T_F = AL_x + BL_Y

Hence, the PPF will be a downward sloping straight line with slope = - (b/a) = - (10/5) = -2

Vertical Intercept will be 100 and horizontal intercept will be equal to 50