3. Suppose that country A produces two goods under conditions of constant opport

Question

3. Suppose that country A produces two goods under conditions of constant opportunity costs. Given its resources, the maximum S that it can make is 1000 units, and the opportunity cost of making T is 2 units of S. What is the maximum amount of T that it can produce? Draw a PPF for country A. Chapter 3 (Questions) 1. For each of the following cases below determine the following (a) the relative price of S to T (P/PT) in each country before trade (b) comparative advantage of each country (c) the range of relative wage between country A and B: W(WB E) abor hours req uired to produce in coun and B 6 15 12 2. Suppose that there are 20,000 hours of labor available in country A, and that 5 hours of labor are required to produce one unit of S, while 4 hours are required to produce one unit of T. Draw A's PPF and find its slope. What is the relative price of S to T (P/PT)? 3. Use the information in problem 2 plus the following additional data to graph A's trade triangle: world relative price of S to T- 2; A's imports of T-1000 Find A's exports of S-?

Explanation / Answer

an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. That is, the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. One can also refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. In other words, an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer. Utility is then a device to represent preferences rather than something from which preferences come.[1] The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles.[2]

There are infinitely many indifference curves: one passes through each combination. A collection of (selected) indifference curves, illustrated graphically, is referred to as an indifference map.

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