Suppose there are only 2 goods, corn (C) and wheat (W), and only two countries,

Question

Suppose there are only 2 goods, corn (C) and wheat (W), and only two countries, US and Japan. The PPC for the US is W+4C=60, the PPC for Japan is 2W+3C=60.
Which of the following is true?

a. For the US the opportunity cost of producing 1 more unit of corn is the foregone production of 4 units of wheat

b. For the US the opportunity cost of producing 1 more unit of wheat is the foregone production of 4 units of corn

c. For Japan the opportunity cost of producing 1 more unit of corn is the foregone production of 2/3 wheat.

d. A and C

e. B and C

Explanation / Answer

a. For the US the opportunity cost of producing 1 more unit of corn is the foregone production of 4 units of wheat The PPC for the US is W+4C=60. To produce one more corn, you need 4 less wheat. Therefore, this is true. We can also assume b. is false from this conclusion. c. For Japan the opportunity cost of producing 1 more unit of corn is the foregone production of 2/3 wheat. The PPC for Japan is 2W + 3C = 60.To produce one more corn, you need 3/2 units of wheat. Therefore, this is false. Therefore, the answer is A! Hope this helped! :)

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