Consider an economy which produces two goods, x and y. The production possibilities curve is...
Question:
Consider an economy which produces two goods, x and y. The production possibilities curve is given by {eq}4x^2 + y^2 = 500 {/eq} .
The economy is open, i.e., its prices are determined by world markets where Px = Py = 1. The utility function describing the tastes of consumers is given by {eq}U = x^{0.5} y^{0.5} {/eq}.
Will the country import or export good x? Also, determine the answer graphically.
Autarky and Terms of Trade:
In economics, autarky refers to a closed economy equilibrium where countries do not engage in trade. Allocations in autarky are useful for determining the patters of trade once countries open up for trade. Specifically, countries will be exporting goods that it can produce at a relatively low price and imports goods that it can produce at a relatively high price in autarky.
Answer and Explanation: 1
Become a Study.com member to unlock this answer! Create your account
View this answerWe can first compute the allocation in autarky, given the country's production possibility frontier and preferences. Specifically, the optimal...
See full answer below.
Ask a question
Our experts can answer your tough homework and study questions.
Ask a question Ask a questionSearch Answers
Learn more about this topic:
Get access to this video and our entire Q&A library
Comparative Advantage, Specialization & Exchange
from
Chapter 57 / Lesson 3
3.6K
A comparative advantages is the ability to produce goods at a lower cost than an opponent. Learn how this relates to absolute advantages and leads to specialization of production and exchange of the surplus products.
Related to this Question
- 45. The production possibilities curve represents the set of all A). Feasible combinations of goods that the economy can produce given that a nation?s resources are fully employed B). factors of produ
- For an economy to produce at a point beyond its production possibilities curve, the economy can: A. use its current set of resources more efficiently B. charge lower prices C. charge higher prices D.
- Draw a production possibilities curve with public goods on the vertical axis and private goods on the horizontal axis. Assuming the economy is initially operating on the curve, indicate how the production of public goods might be increased. How might the
- You are told that the economy is producing efficiently and has chosen to produce and consume 2 units of X and 22.5 units of Y. At this point on the production possibilities frontier, you can use calculus to obtain the opportunity cost of X as: A) 1.4 B)
- You are told that the economy is producing efficiently and has chosen to produce and consume 6 units of X and 16 units of Y. At this point on the production possibilities frontier, you can use calculus to obtain the opportunity cost of X as: A) 2 B) 1/2
- The production possibilities frontier model shows that: a) if consumers decide to buy more of a product, its price will increase. b) a market economy is more efficient in producing goods and services than is a centrally planned economy. c) economic gro
- A production possibilities curve (PPC) is an economic model that: a. Depicts the amounts of two goods that can be produced. b. Indicates the prices of the goods being produced. c. Does not reflect the opportunity costs associated with producing various
- Draw production possibilities curve with public goods on the vertical axis and private goods on the horizontal axis. Assuming the economy is initially operating on the curve, indicate how the production of public goods might be increased. How might the ou
- How is the production possibilities frontier related to the production contract curve? The production possibilities frontier shows A. the total cost of producing combinations of two goods along the production contract curve. B. which points on the product
- A war would most likely: a. Make the production possibilities curve flatter b. Shift the entire production possibilities curve outwards c. Shift both of the economic sectors' intercepts inwards d. Make the production possibilities curve steeper
- On a production possibilities curve, unemployment is represented by: a. a point on the production possibilities curve. b. the points at which the production-possibilities curve touches each axis. c. a point below or to the left of the production possibili
- If an economy is producing efficiently and has chosen to produce and consume 12 units of X and 128 units of Y. At this point on the production possibilities frontier, one can use calculus to obtain the opportunity cost of Y as: A) -12 B) -6 C) 0 D)
- Economic growth causes the: A. a production possibilities curve to shift rightward and the long-run aggregate supply curve to shift rightward. B. production possibilities curve to shift leftward and the long-run aggregate supply curve to shift leftward. C
- With trade, the production possibilities for two nations lie a. outside their consumption possibilities. b. inside their consumption possibilities. c. at a point equal to the world production possibilities curve. d. None of the answers above are corre
- Unemployment: A. causes the production possibilities curve to shift outward. B. can exist at any point on a production possibilities curve. C. is illustrated by a point outside the production possibilities curve. D. is illustrated by a point inside the pr
- On a production possibilities curve, the opportunity cost of good X in terms of good Y is represented by a. the distance to the curve from the vertical axis. b. the distance to the curve from the horizontal axis. c. the movement along the curve. d. Al
- Suppose the U.S. is producing on its concave to the origin (bowed out) shaped production possibilities frontier (curve). The PPF is defined over capital goods and consumption goods. At its current point of production, the opportunity cost of 1 billion uni
- A point on the frontier of the production possibilities curve is: a. attainable and the economy is efficient. b. attainable, but the economy is inefficient. c. unattainable and the economy is ineffici
- A graph that shows the maximum attainable combinations of two goods when society efficiently uses its productive resources is called a. a production possibilities frontier (PPF). b. a supply curve. c. opportunity cost. d. a consumer demand curve. e. absol
- You are told that the economy is producing efficiently and has chosen to produce and consume 1 unit of X and 39.6 units of Y. At this point on the production possibilities frontier, you can use calculus to obtain the opportunity cost of Y as.
- Consider two points on the production possibilities curve: point A, at which there are 50 oranges and 100 apricots, and point B at which there are 51 oranges and 98 apricots. If the economy is currently at point A, the opportunity cost of moving to point
- Consider an individual making choices over two goods, x and y with prices px and py, and who has income I: (a) What is the MRTS_K,L for the following production function: Q = K^2L? What returns to scale does the production function exhibit? (b) What is
- In the production possibilities model of an economy, when there is full employment of resources A. a nation will be operating at an interior point within its production possibilities curve. B. a nation will be operating on the production possibilities c
- The LRAS curve is nearly vertical because: a. When the public gets very rich, they do not need more goods and they only bid the prices up for existing goods b. As we approach potential GDP, the economy can not expand output, given our resource base and le
- An economy uses only labor as input to produce two goods, A and B. If its production possibilities frontier (PPF) of two goods is a negative-sloped straight line, what is the implication in opportunity costs? Will the law of increasing costs still hold?
- Different types of labor, capital, and natural resources have different capabilities to produce goods and services. In the Production Possibility Frontier (Curve) model, this phenomenon implies an) [{Blank}] opportunity cost and a [{Blank}] shaped curve.
- Consider a production possibilities frontier (PPF) where the two goods are swords and ankle bracelets. The PPF is bowed outward when a. an economy is self-sufficient does not trade with other economies. b. the opportunity cost of increasing the producti
- If there is a shortage of product X, and the price is free to change: A. fewer resources will be allocated to the production of this good. B. the price of the product will rise. C. the price of the product will decline. D. the supply curve will shift
- Suppose goods X and Y are produced along a production possibilities frontier X^2 + 4Y^2=500 and they are perfect substitutes such that U = X + Y. The slope of the production possibilities frontier is
- With trade, the production possibilities for two nations lie a. outside their consumption possibilities. b. inside their consumption possibilities. c. at a point equal to the world production possibilities curve. d. None of the answers above are correct.
- Scarcity, choice, and opportunity cost can be illustrated with the aid of a production possibilities curve (PPC), also called a Production Possibilities Frontier (PPF). In terms of this statement, discuss the importance of the production possibility front
- There are two goods, A and B. Suppose the production possibilities frontier (PPF) of a country is given by Q_B = (100 - 2Q_A^2)^{1/2}. The slope of this PPF is -2Q_A/Q_B. Finally, assume that the price of good A is 12 and the price of good B is 4. How muc
- If the red curve is the production possibilities frontier (PPF) derived by the production function, then a) Any point that lies to the left of the PPF is unattainable. b) Any point that
- If an economy is experiencing unemployment, it is operating at a point A. on its production possibilities curve (PPC). B. below its PPC. C. beyond its PPC. D. at the horizontal intercept of its PPC. E. at the vertical intercept of its PPC.
- Suppose the economy is producing below the potential level of output. If the Fed decided to use open market operations (OMOs) to bring about production at the potential level of output, will they buy
- Unemployment would cause an economy to a. experience an inward shift of its production possibilities frontier. b. produce outside its production possibilities frontier. c. produce inside its productio
- Economic growth can be pictured in a production possibilities curve diagram by: a. shifting the production possibilities curve out. b. moving from right to left along the curve. c. moving from left to right along the curve. d. shifting the production poss
- In the production possibilities frontier framework, unemployment is represented by: A) an inward shift of the curve. B) a point located inside the curve. C) a point located outside the curve. D) a point located on the curve.
- Illustrate opportunity cost with a production possibilities curve (this would involve any two products and numbers). What would the production possibilities curve actually mean?
- In the 2-factor, 2 good Heckscher-Ohlin model, an influx of workers from across the border would a. move the point of production along the production possibility curve. b. shift the production possibi
- Draw a production possibility frontier (PPF) that represents the production possibilities for goods X and Y if there are constant opportunity costs. Next, represent an advance in technology that makes it possible to produce more of X but not more of Y. Fi
- A production possibilities curve shows the various combinations of two outputs that: a. consumers would like to consume. b. producers would like to produce. c. an economy can produce. d. an economy should produce.
- Suppose an economy has a production possibility frontier characterized by the following equation: Y = -X^2 + 625 a) Sketch the PPF b) Calculate 3 opportunity costs between 4 different points on the
- On a production possibilities curve, a change from economic inefficiency to economic efficiency is obtained by: a. movement along the curve. b. movement from a point outside the curve to a point on the curve. c. movement from a point inside the curve to a
- Suppose you find a production possibilities frontier (PPF) that is shaped like a straight line. What can you determine about the production of the two goods? A. Production of the two goods is subject to decreasing opportunity costs. B. Production of the t
- Consider the production possibilities frontier for a country. Which points can be defined as efficient? a. all points that are on the production possibilities frontier b. all points that are feasible c. all points outside the frontier d. all points either
- Consider a production possibilities frontier (PPF) that is concave (bowed outward from the origin). Such a PPF displays increasing opportunity costs, meaning that the cost of producing additional units of both goods rises. What is the reason for increasin
- When drawing a production possibilities frontier, which of the following is held constant? a. the amount of money in the economy b. the prices of goods and services c. the quantity of the goods and services that are produced d. the available factors of pr
- When drawing a production possibilities frontier, which of the following is held constant? A. the amount of money in the economy B. the prices of goods and services C. the quantity of the goods and services that are produced D. the available factors o
- If the curve of a production possibility frontier is concave, would the opportunity cost of clothing production increase if the shape of the curve is convex instead?
- Suppose you find a production possibilities frontier (PPF) that is shaped like a straight line. What can you determine about the production of the two goods? a. Production of the two goods is subject to decreasing relative cost. b. Production of the two g
- Assume that an economy's production function is Y = 1000L^1/2, so that when the marginal product of capital is equated to the real wage the labor demand curve is L = 250, 000 (P/W)^2. The labor supply
- On a production possibilities curve, the opportunity cost of good X in terms of good Y is represented by which of the following? a. the distance to the curve from the vertical axis b. the distance to the curve from the horizontal axis c. the movement alon
- When drawing a production possibilities frontier, which of the following is held constant? a. the available factors of production and the state of technology b. the amount of money in the economy c. the prices of goods and services d. the quantity of the
- Assume there are two basic goods produced in a nation, consumer goods and capital goods. The production possibilities graph for these two goods is bowed out from the origin. This reason for this shape of the graph is because of: A. the other-things-equal
- When constructing a production possibilities frontier, which of the following assumptions is not made? a. The economy produces only two goods or two types of goods. b. Firms produce goods using factors of production. c. The quantities of the factors of pr
- Using a production possibilities curve, explain the opportunity cost principle. Suppose an economy produces only food and housing. Draw and explain the characteristics of its production possibilities
- A production possibilities frontier that is a downward- sloping straight line implies a) no economies of scope. b) diseconomies of scale. c) economies of scale. d) economies of scope.
- On a production possibilities curve, production is efficient if Select one: a. the production combination of goods is inside the curve. b. the production combination of goods is outside the curve. c. the production combination of goods is on or inside
- The following table sets out the production possibilities of an economy producing two goods: Answer the following questions: A) What does the frontier of production possibilities mean? B) Graph the boundary of production possibilities. C) What if you deci
- Which of the following is true of the production possibilities curve? a. It assumes a fixed quantity of resources. b. It assumes the prices of the products considered are equal. c. A point inside the curve is efficient. d. All of the above are correct.
- How would the following events be shown using a production possibilities curve for housing and food? (Show a graph of a production possibilities curve for part D)). a. The economy is experiencing doub
- Suppose that an economy has the PPF as shown in the table below. Production Possibilities a. Plot these production possibilities, label the points, and draw the PPF (put good B on the x-axis). b. If the economy moves from possibility c to possibilit
- Using a production possibilities curve, unemployment is represented by a point located: a. near the middle of the curve. b. at the top corner of the curve. c. at the bottom corner of the curve. d. outside the curve. e. inside the curve.
- An economy's production possibilities boundary is given by the mathematical expression 45 = A + 2B, where A is the quantity of good A and B is the quantity of good B. Draw the PBB on a grid putting A on the vertical axis.
- If there is an increase in labor productivity: a) the production possibilities curve would shift outward and the long-run aggregate supply curve would shift rightward. b) the production possibilities curve would shift inward and the long-run aggregate sup
- Think of the production possibilities frontier (PPF) model. When society is producing the largest possible output from its resources, it is operating a. inefficiently. b. efficiently. c. with no opportunity cost. d. inside (within) the PPF. e. beyond its
- Which of the following is assumed in constructing a typical production possibilities curve? (a) The economy is engaging in international trade (b) Production technology is fixed (c) The economy is using its resources inefficiently (d) Resources are perfec
- Consider a firm where production depends on two inputs, labor and capital with prices w and r, respectively. The firm is a price taker in all input markets; initially the firm faces market prices of w
- A point outside the production possibilities curve is: A. unattainable without economic growth. B. attainable and the economy is efficient. C. unattainable without inflation. D. attainable, but the economy is inefficient.
- Draw a production possibilities frontier if she has 280 budgeted to spend on the purchase of chips. Income = 280 Price of X = 1.00 Price of Y = 1.40 280/1.00 = 280 280/1.40 = 200
- Production possibilities curves are important tools for: a. demonstrating which products will sell better than others. b. comparing costs and profits of producing goods and services. c. determining the underutilization of an economy's resources. d. showin
- Consider the following which represents the equation for a production possibility frontier: y= - (1/4) x^2 - (1/2 )x + 42 where y is the quantity of industrial goods and x is the quantity of agricul
- An economist estimated that the cost function of a single-product firm is C(Q) = 50 + 25Q + 30Q^2 + 5Q^3. Determine the variable cost of producing 10 units of output.
- Consider the production possibilities curve for a nation that can produce either consumption or investment goods. Describe and show the impact of each of the following using the PPF diagram. a. Techn
- The production possibilities curve a. shows all combinations of goods that society most desires. b. indicates that any combination of goods lying outside the curve is attainable. c. is bowed out from the origin. d. is bowed in toward the origin.
- The bowed shape of the production possibilities frontier can be explained by the fact that? A) all resources are scarce. B) economic growth is always occurring. C) the opportunity cost of one good in terms of the other depends on how much of each good t
- In order for a country to increase its future economic growth, it must choose a point that is: a. below its production possibilities curve. b. further along on its production possibilities curve toward the capital goods axis. c. further along on its produ
- Using a production possibilities curve, unemployment is represented by a point located where? a. near the middle of the curve b. at the top corner of the curve c. at the bottom corner of the curve d. outside the curve e. inside the curve
- An economy's production possibilities boundary is given by the mathematical expression 45 = A + 2B, where A is the quantity of good A and B is the quantity of good B. Suppose that the production of B is increased from 3 to 5 units and that the economy i
- What is a curve representing the maximum possible combinations of total output that could be produced assuming a fixed amount of resources of a given quality: a. The Production Possibilities Curve, b. Market Demand Curve, c. The Land and Labor Efficiency
- Scarcity, choice, and opportunity cost can be illustrated with the aid of a production possibilities curve (PPC), also called a Production Possibilities Frontier (PPF). In terms of the above statement, discuss the importance of the production possibility
- An economy's production possibilities frontier is also its consumption possibilities frontier: a. under all circumstances b. under no circumstances c. when the economy is self-sufficient d. when the r
- With trade: a. an economy can realize higher welfare b. an economy can specialize in the production of fewer goods c. an economy moves to a higher production-possibilities frontier d. members of an economy can consume more of all goods e. All of these ans
- Suppose an economy produces only two goods, computers and TVs. If the economy operates at a point on its production possibilities curve, it can produce more computers only if: a. it charges more for TVs. b. it shifts to a point inside its production possi
- On a production possibilities frontier (PPF) that shows the trade-off between consumer goods and capital goods given a fixed amount of labor, unemployment is illustrated by a. movement from a point within the frontier to a point on the frontier. b. a poin
- Consider the figure at the right. This economy moved from production possibilities boundary A to production possibilities boundary B because A. There has been a decline in productive capacity. B. The
- A point on the frontier of TGE production possibilities curve is _.
- Consider the production function Q=K+ \sqrt L . Derive the input demand curves for L \enspace and \enspace K , as a function of the input prices w (price of labor services) and r (price of c
- Any point inside a production possibilities curve gives what indication about the subject economy? a. That it is efficient b. That unemployment is decreasing c. That production levels are increasing d. That it is inefficient
- Country X has a high unemployment rate. It follows that country X is operating a. beyond its production possibilities frontier (PPF) b. on its PPF c. inside(below) its PPF d. at a productive effi
- Consider an economy that produces consumer goods and capital goods. Suppose the economy is operating at full-employment and all capital goods are subject to legal price ceilings set below equilibrium
- Suppose that the relevant production possibilities boundary is the one labeled B. This boundary implies that A) the concept of opportunity cost is not at work in this economy. B) the opportunity cost of producing either capital goods or consumer goods d
- Consider a production function for an economy: Y = 20 (L^{0.5}K^{0.4}N^{0.1}) where L is labor, K is capital, and N is land. In this economy the factors of production are in fixed supply with L = 100, K = 100, and N = 100. a) What is the level of output i
- The location of the _____ curve depends on the economy's supply of land, supply of capital supply of labor, entrepreneurial ability, and productivity of its scarce resources; it does not depend on the price level. A. yield B. short-run aggregate supply C.
Explore our homework questions and answers library
Browse
by subject