Original
For this problem of the assignment, assume that there are two products, X and Y. By using all its resources to produce X, country A can produce 80 units of X. By using all its resources to produce Y,
country A can output 40 units of Y. We also know the following:
a. For another country B, comparable figures are 60 X and 60 Y.
b. There are constant costs of production. Please answer the following two questions.
Question 1. Draw the diagrams as straight lines, which indicate the production possibilities frontiers:
Original
Question 2: Please answer the following:
a. In which product should country A specialize, and why?
b. In which product should country B specialize, and why?
c. Discuss the terms of trade between these two economies.
Notice that in all Demand-Supply diagrams in economics, the axes of the diagrams are reversed. That is, the X-var
Also, the Y-variable, which is Quantity (as in Q = f(P)), should be on the vertical axis in a ‘regular’ diagram. But in d
As a result, the ‘shift parameters’ move the respective curve to the left and to the right, not up or down. Also, ‘slope
No wonder economics sounds so confusing. Why did economists do that? Because demand-supply diagrams use A
Intercept (Shift Parameter):
2 Intercept (Shift Parameter):
3
Demand
Supply
Slope
Quantity Demanded
Price Slope
Quantity Supplied
Price
2
200
13
200
3
189 -0.09091
12
189 0.090909
4
178 -0.09091
11
178 0.090909
5
167 -0.09091
10
167 0.090909
6
156 -0.09091
9
156 0.090909
7
145 -0.09091
8
145 0.090909
8
134 -0.09091
7
134 0.090909
9
123 -0.09091
6
123 0.090909
10
112 -0.09091
5
112 0.090909
11
101 -0.09091
4
101 0.090909
12
90 -0.09091
3
90 0.090909
Demand, Supply and Equilibrium
250
200
150
100
50
0
0
2
4
6
8
10
12
grams are reversed. That is, the X-variable, which is Price and should be on the horizontal axis, is actually on the vertical axis.
cal axis in a ‘regular’ diagram. But in demand-supply diagrams, Q is on the horizontal axis.
11
o the right, not up or down. Also, ‘slope’ is not rise over run, but run over rise (did you know that?)
ecause demand-supply diagrams use Alfred Marshall’s theory, but the equations use Leon Walras’ theory (never mind…)
Excess Demand
-11
-9
-7
-5
-3
-1
1
3
5
7
9
12
14
s actually on the vertical axis.
s’ theory (never mind…)
Notice that in all Demand-Supply diagrams in economics, the axes of the diagrams are reversed. That is, the X-var
Also, the Y-variable, which is Quantity (as in Q = f(P)), should be on the vertical axis in a ‘regular’ diagram. But in d
As a result, the ‘shift parameters’ move the respective curve to the left and to the right, not up or down. Also, ‘slope
No wonder economics sounds so confusing. Why did economists do that? Because demand-supply diagrams use A
Intercept (Shift Parameter):
2 Intercept (Shift Parameter):
3
Demand
Supply
Slope
Quantity Demanded
Price Slope
Quantity Supplied
Price
2
200
13
200
3
189 -0.09091
12
189 0.090909
4
178 -0.09091
11
178 0.090909
5
167 -0.09091
10
167 0.090909
6
156 -0.09091
9
156 0.090909
7
145 -0.09091
8
145 0.090909
8
134 -0.09091
7
134 0.090909
9
123 -0.09091
6
123 0.090909
10
112 -0.09091
5
112 0.090909
11
101 -0.09091
4
101 0.090909
12
90 -0.09091
3
90 0.090909
Demand, Supply and Equilibrium
250
200
150
100
50
0
0
2
4
6
8
10
12
grams are reversed. That is, the X-variable, which is Price and should be on the horizontal axis, is actually on the vertical axis.
cal axis in a ‘regular’ diagram. But in demand-supply diagrams, Q is on the horizontal axis.
11
o the right, not up or down. Also, ‘slope’ is not rise over run, but run over rise (did you know that?)
ecause demand-supply diagrams use Alfred Marshall’s theory, but the equations use Leon Walras’ theory (never mind…)
Excess Demand
-11
-9
-7
-5
-3
-1
1
3
5
7
9
12
14
s actually on the vertical axis.
s’ theory (never mind…)