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The following table shows the consumption/production amount of wheat and cloth before and after trade in country Utopia. The autarky price is 0.5 units of cloth per unit of wheat. Land and labor are required to produce these goods. However, the land-labor proportion used in producing wheat is larger than the production of cloth. Utopia is a land abundant country while its trading partner country is a labor abundant. Given all the above information, please answer the following problems:

UTOPIA BEFORE TRADE AFTER TRADE
Consumption (50,40) (40,60)
Production (50,40) (80,20)
(wheat,cloth) (wheat/cloth)
Price of wheat 0.5(cloth/wheat) ?

a) Please draw a PPF for Utopia in which the wheat is measured on the horinzontal axis and the cloth on the vertical axis. What does the PPF look like? How do you determine its shape?

b) according to the provided information, please indicate autarky consumption and production point on the PPF. How large is the marginal cost(cloth/wheat) at this autarky point?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M964989

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