1. Assume that Country Alpha and Country Beta produce only two goods: wheat and cloth. Both countries have constant opportunity costs of production and trade with each other.
The table below shows the maximum amount of each good that can be produced in one day if all resources are fully employed.
Production Possibilities Data
Country | Maximum Wheat Production | Maximum Cloth Production |
|---|---|---|
Alpha | 100 | 50 |
Beta | 40 | 40 |
Draw a correctly labeled graph of the production possibilities curve for Country Alpha and show each of the following.
The vertical axis labeled Wheat and the horizontal axis labeled Cloth
A curve showing the numerical values of the maximum output of each good
A point representing an underutilization of resources, labeled U
A point representing full employment of resources, labeled F
Calculate the opportunity cost of producing one unit of cloth in Country Alpha. Show your work.
Use the data in the table to answer the following.
Which country has the comparative advantage in producing wheat? Explain.
Which country has the absolute advantage in producing cloth? Explain.
Assume that Country Alpha and Country Beta decide to trade.
Identify a specific number of units of wheat that could be traded for one unit of cloth that would be mutually beneficial to both countries.
If Country Alpha specializes according to its comparative advantage, will it import wheat or cloth? Explain.
Assume that a new technology is developed that improves the efficiency of producing wheat in Country Alpha, but not cloth. On your graph in part A, draw the new production possibilities curve for Country Alpha.
Required Graph Drawing