💶AP Macroeconomics
1. Assume that the country of Zymovia produces only two goods: grain and steel.
Zymovia's resources are fully employed.
If Zymovia devotes all its resources to grain, it can produce 100 tons of grain per day.
If Zymovia devotes all its resources to steel, it can produce 50 tons of steel per day.
The opportunity cost of production is constant.
Draw a correctly labeled graph of the production possibilities curve (PPC) for Zymovia (Figure 1), with grain on the horizontal axis and steel on the vertical axis. Plot the numerical values of the intercepts. Label a point A that represents full employment and efficient production. Label a point B that represents inefficient production.
Calculate the opportunity cost of producing one ton of steel in Zymovia. Show your work.
Table 1: Maximum Daily Production with Available Resources
Country | Grain (tons per day) | Steel (tons per day) |
|---|---|---|
Zymovia | 100 | 50 |
Xyloland | 60 | 20 |
Which country has the comparative advantage in the production of steel? Explain. Now assume Zymovia trades with a neighboring country, Xyloland. The production data for both countries is provided in Table 1.
Identify a specific numerical value for the terms of trade for one ton of steel (in terms of grain) that would be beneficial for both Zymovia and Xyloland.
Draw a correctly labeled graph of the market for grain in Zymovia (Figure 2). Label the equilibrium price as Pe and the equilibrium quantity as Qe. Assume that grain is produced in a competitive market in Zymovia.
The government of Zymovia imposes a binding price ceiling on the market for grain. On your graph in part E (Figure 2), show the price ceiling labeled Pc, the quantity of grain demanded labeled Qd, and the quantity of grain supplied labeled Qs.
Required Graph Drawings
00:00
