1. Sylvaria and Novara are two countries that produce only two goods: textiles and electronics. The table below shows the maximum annual output for each country if they use all their available resources efficiently. Assume that both countries have constant opportunity costs for both goods.
Table 1: Annual Production Possibilities
Country | Maximum Textiles (units) | Maximum Electronics (units) |
|---|---|---|
Sylvaria | 100 | 50 |
Novara | 80 | 20 |
Using the data in Table 1, draw a correctly labeled graph of the production possibilities curve (PPC) for Sylvaria. Show each of the following.
The numerical values for the vertical and horizontal intercepts
A point labeled A that represents a combination of goods that is efficient
A point labeled U that represents a combination of goods that is inefficient
Calculate the opportunity costs based on the data in Table 1.
Calculate the opportunity cost of producing one unit of electronics in Sylvaria. Show your work.
Calculate the opportunity cost of producing one unit of electronics in Novara. Show your work.
Sylvaria and Novara decide to specialize and trade.
Which country has the comparative advantage in the production of electronics? Explain.
Identify a specific number of units of textiles that could be traded for one unit of electronics that would be mutually beneficial to both countries.
Assume that Sylvaria develops a new technology that improves the efficiency of producing electronics but has no effect on the production of textiles. On your graph in part A, draw the new production possibilities curve for Sylvaria.
Consider the shape of the production possibilities curve drawn in part A.
Explain why the production possibilities curve for Sylvaria is a straight line.
If the resources in Sylvaria were specialized and not easily adaptable between the production of textiles and electronics, how would the shape of the production possibilities curve change?
Required Graph Drawing
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