ECONOMICS HOMEWORK

May 27th, 2016
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Describe Product possibility frontier. Suppose that China can use cheaper labor to produce every product more cheaply than Canada. Explain why Canada will still gain from international trade with China.

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Running head: ECONOMICS1EconomicsInstitution/ universityNameInstructorCourseDateRunning head: ECONOMICS2Product possibility frontierProduction possibility frontier is a term in macroeconomics that refers to the point at which anindividual economy is producing its goods and services in the most efficient ways. The statementproducing its goods and services efficiently refers to a situation where the allocated resources areutilized in the best way possible. In the case, that an individual economy is not producing theamount of good and services depicted in the production possibility frontier it means that theallocated resources are mismanaged, and the production will fail. It is best explained where anindividual economy can produce two commodities. The chart below demonstrates the principleof production possibility frontier.From the above graph, A, B and C represent the efficient use of allocated resources. Point Yrepresents goals the economy cannot attain with the available resources. Point X represents theinefficient use of allocated resources. Wine and cotton are the two commodities produced usingthe available resources. From the graph above. It is evident that overproduction of one of the twocommodities translates to decrease in production of the other commodity because they rely on aRunning head: ECONOMICS3fixed amount of resources that has to be spent for production to take place. Despite the fact thatpoint Y is unreachable by the above

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