COMM 171 Week 1.2

Question 1

THE PRODUCTION POSSIBILITIES
FRONTIER

Answer 1

The PPF is a diagram that shows the combinations of two goods that are possible for a society to produce at full
employment

The Production Possibility Frontier (PPF) is a graphical representation that shows the maximum feasible amounts of two commodities that a country can produce, given its available resources and technology, when those resources are fully and efficiently utilized

Question 2

• Difference between points inside or on the ppf and outside the ppf or on the line

Answer 2

• Difference between points inside or on the ppf and outside the ppf

1. If a production point lies inside or on the frontier it means that its feasible
2. If a production point lies outside the frontier – this means its not feasible
3. If a production point lies on froniter it means its effeicent

Question 3

what questions can we answer using teh PPF model

Answer 3

We can use the PPF model to answer questions like:
– How much can we produce?
– What will it cost us to change our mix of production?
– Does it make sense to import the good from somewhere
else?

Question 4

Autarky

Answer 4

Autarky: a situation in which a country does not trade with other
countries (our baseline to show gains from trade)

Question 5

What happens to the price of quantitty if both the supply and demand curve shift

Answer 5

It depends on how much the shift for supply/demand is

Question 6

what dies the PPF and comaprative advnatge model help with

Answer 6

1. The production possibility frontier, a model that helps economist think about the trade-offs every economy faces
2. Comparative advantage, a model that clarifies the principle of gains from trade between individuals and between countries.

Question 7

How to find the opporuntiy cost

Answer 7

You can find oppruntiy cost by y axis / X axis and that will give you the X axis. Exmple

y axis is 30 large jets and X axis is 40 small jets.
to produce on large jet you sacrisfe 4/3 small jets and to produce one small jet you sacrisifse 3/4 large jets

Antoher way to find it is through the slope th eslope will give you the opportunity cost

Question 8

Positive and Normative Economics:

Answer 8

Positive economics: is the branch of economic analysis that descrbibes the way the economy actually works
Normative economics: makes precispitation about the way the economy should work

Question 9

Comparative advnatge vs absolute advnatge

Answer 9

Where absolute advantage refers to the ability of an entity to produce a greater quantity of a product or service,

comparative advantage refers to the ability to produce goods and services at a lower opportunity cost compared to the competition.

Question 10

Richardian model and comaprative theory

Answer 10

comparative theory:
It makes sense to produce the things you’re especially good at
producing… and buy everything else from others

Trade follows the Ricardian model. – (We assume that countries will specialize in goods in goods they can produce more cheaply than other countries, assuming constant opportunity costs.