Fos
Corn Produced
Wheat Produced
g. How much more of each good is produced in total with specialization than when there was no
trade? Com
Wheat
h. Now suppose Country B improves its technology to produce wheat, and now each worker can
produce 41 tons of wheat per year. Are the gains from trade between Country A and Country B higher
or lower than before? Why?
2. Suppose that Happy Land produces only two goods-food and suntan oil. Its production
possibilities are:
Food (pounds per month)
300
200
100
0
Suntan oil (gallons per month)
0
50
100
150
Active Land also produces only food and suntan oil, and its production possibilities are:
Food (pounds per month)
150
100
50
0
Draw the two PPFs
350-
250
150
50
(Happy Land) Gallons
100
50
Suntan oil (gallons per month)
0
100
200
300
PPF of Active
Land
100
200
Suntain oil
a. What are the opportunity costs of food and suntan oil in Happy Land?
b. Why are the opportunity costs the same at each output level?
c. What are the opportunity costs of food and suntan oil in Active Land?
d. If each nation specialized where they have a comparative advantage, and then traded, find the
acceptable ranges for trade.
e. 1 pound of food would have to trade between which values of suntan oil?
f. 1 pound of suntan oil would have to trade between which values of food?
g. If each nation produces where they have a comparative advantage, and the terms of trade are 50
pounds of food for 75 gallons of suntan oil, how much will each nation profit by, compared to
producing both good themselves? Happy Land,
Active Land
"The numbers in this problem are very easy to work with. Make sure you understand the steps to
solve the problem, so you can apply them to problems with more complicated numbers.
3. Supply & Demand
A) Define (in your own words, please do not use the book, or other online resources) and give a
strong, unique example for the following terms. Answers will be checked for originality.
