Description
800-1,000 words
Suppose that there are two products: clothing and soda. Both Brazil and the United States produce each product. Brazil can produce 100,000 units of clothing per year and 50,000 cans of soda. The United States can produce 65,000 units of clothing per year and 250,000 cans of soda. Assume that costs remain constant. For this example, assume that the production possibility frontier (PPF) is a straight line for each country because no other data points are available or provided. Include a PPF graph for each country in your paper. Chapter 5 of the Suranovic text is a good reference for this task.
Complete the following:
- What would be the production possibility frontiers for Brazil and the United States?
- Without trade, the United States produces AND CONSUMES 32,500 units of clothing and 125,000 cans of soda.
- Without trade, Brazil produces AND CONSUMES 50,000 units of clothing and 25,000 cans of soda.
- Denote these points on each COUNTRY’s production possibility frontier.
- Using what you have learned and any independent research you may conduct, which product should each country specialize in, and why?
To assist in your thinking and discussion, additional questions to consider include:
- What is the labor-intensive good?
- What is the Marginal Rate of Transformation impact?
- What is the labor-abundant country?
- What is the capital-abundant country?
- Could trade help reduce poverty in Brazil and other developing countries?
Explanation & Answer
Attached.
Running Head: COSTS OF THE PPF
1
Costs of the PPF
Institution Affiliation
Course Name
Unit Code
Instructors Name
Students Name
Date
2
COSTS OF THE PPF
Answer:
Production possibility frontier for Brazil:
Clothes 0
Sodas
100
clothes (thousands)
50
0
soda
25
50
Production possibility frontier for United States:
50000 100000
50000 25000 0
3
COSTS OF THE PPF
Clothes 0
Soda
45000
65000
250000 150000 0
As it is depicted in the first and second graph, the straight line illustrates production possibility
frontier, when the cost remain constant for US as well as Brazil. The assumptions made here is
that Brazil is able to produce 100000 units of clothing as well as 50000 cans of soda per year
whereas the US can yield 65000 units of clothing and 250000 cans of soda per year.
COSTS OF THE PPF
4
The marginal transformation rate for each country?
The marginal rate of transformation refers to the rate at which one good must be forgone so as to
yield another good, supposing that both goods need the same scarce inputs. From our graph
using the production possibilities frontier it is possible to...