The following two graphs show the production possibility frontiers for the Unite
ID: 1215561 • Letter: T
Question
The following two graphs show the production possibility frontiers for the United States and Mexico in the production of automobile parts and computer software. What is the opportunity cost for one more auto part for the United States? For Mexico? What country has an absolute advantage in making auto parts? What country has an absolute advantage in making software? What does absolute advantage mean?What country has a comparative advantage in making auto parts? What country has a comparative advantage in making software? What does comparative advantage mean? If the U.S. and Mexico were to trade, which country should make auto parts? Give an example of a possible trade that would make both countries better off.Explanation / Answer
a. The PPF is a straight line for US & Mexico.
We can use point slope form to calculate the opportunity cost
US
m=(90-0)/(0-18)=-5
So the opportunity cost of one more auto part is 5 un its of software.
MEXICO
m=(18-0)/(0-9)=-2
So the opportunity cost of one more auto part is 2 un its of software.
b. United States has absolute advantage in making auto parts and software.
Absolute advanatge is the ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group.
c.Mexico has comparative advantage in producing auto parts whereas US has comparative advantage in producing Software.
Comparative advatage is the ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity.
d.If US and MExico were to trade,Mexico would make auto parts.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.