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.  

  1. (PRACTICE) Consider a new numerical example and answer the following questions:
  1. Draw a PPF from the table provided.
    1. 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)? 
    1. 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.
  1. Draw a PPF for each country. (Hint: The numbers given are the end points of a PPF that is straight).
    1. What is the opportunity cost for coffee in Jamaica? What is it for Belgium?
    1. What is the opportunity cost for waffles in Jamaica? What is it for Belgium?
    1. Does the law of increasing costs apply to this example?
    1. Which country has a comparative advantage in coffee? Which in waffles?
    1. 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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