🤑AP Microeconomics
1. Assume that the country of Belgravia produces two goods: consumer goods and capital goods. The available resources in Belgravia are not equally suited for the production of both goods.
Belgravia is currently operating at a point on its production possibilities curve.
Draw a correctly labeled graph of the production possibilities curve for Belgravia. Show each of the following.
A production possibilities curve that reflects increasing opportunity costs
A point labeled A that represents full employment and productive efficiency
A point labeled B that represents a recession or unemployment
A point labeled C that is currently unattainable
Assume Belgravia is currently producing at point A on your graph. The marginal benefit of the last unit of capital goods produced is greater than the marginal cost of the last unit of capital goods produced. Should Belgravia produce more capital goods, fewer capital goods, or the same amount of capital goods to achieve allocative efficiency? Explain.
Table 1: Output per Worker per Day
Country | Capital Goods | Consumer Goods |
|---|---|---|
Belgravia | 10 | 40 |
Sarovia | 5 | 30 |
Now assume that Belgravia trades with a neighboring country, Sarovia. The table below shows the maximum output of each good that a single worker can produce in one day in each country. Assume constant opportunity costs.
Calculate the opportunity cost of producing one unit of capital goods in Belgravia. Show your work.
Which country has a comparative advantage in the production of consumer goods? Explain.
Based on the data in Table 1, identify a specific number of units of consumer goods that could be traded for one unit of capital goods and would be mutually beneficial for both Belgravia and Sarovia.
Assume that Belgravia decides to increase its production of capital goods significantly this year.
What will happen to Belgravia's production possibilities curve in the long run? Explain.
On your graph in part A, show the change identified in part E(i).
Required Graph Drawing
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