Instructions: Please complete question 1 on your own as practice. Share your results with your group and then work on questions 2 and 3 together after reading chapter 3 and viewing the lecture. Please submit these answers as a group.
- (PRACTICE) Consider a new numerical example and answer the following questions:
- Draw a PPF from the table provided.
- What is the opportunity cost of the 2nd capital good (moving from point B to Point C)? the 3rd (moving from point C to point D)?
- Does the law of increasing costs apply in this example?
- Consider the following example of two countries and two PPFs. Suppose Jamaica, with all of its factors of production, can make 2 units of coffee or 1 waffle. Suppose Belgium can make 1 unit of coffee or 4waffles.
- Draw a PPF for each country. (Hint: The numbers given are the end points of a PPF that is straight).
- What is the opportunity cost for coffee in Jamaica? What is it for Belgium?
- What is the opportunity cost for waffles in Jamaica? What is it for Belgium?
- Does the law of increasing costs apply to this example?
- Which country has a comparative advantage in coffee? Which in waffles?
- If the countries engage in complete specialization (making only one good) with their comparative advantage and then traded 1 cup of coffee for 2 waffles. Would both benefit? How can you use the PPF model to show that both countries could benefit?
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