Question

2. Suppose that Happy Land produces only two goods-food and suntan oil. Its production possibilities are: Food (pounds per month) Suntan oil (gallons per month) 300 200 50 100 150 Active Land also produces only food and suntan oil, and its production possibilities are: 100 Suntan oil (gallons per month) Food (pounds per month) 150 100 50 0 100 200 300 Draw the two PPFs 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. 1 pound of food would have to trade between which values of suntan oil? 1 pound of suntan oil would have to trade between which values of food? e. 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

Answer 1

900 2001 100 50 100 150 200+ 150- 50 100 200 300

a)opportunity cost of food and suntan oil in happy land is 2

b) Opportunity costs are expressed in terms of how much of another good, service, or activity must be given up in order to pursue or produce another activity or good. For example, when you head out to see a movie, the cost of that activity is not just the price of a movie ticket, but the value of the next best alternative, such as cleaning your room.

c)opportunity cost of food and suntan oil in active land is 1/2

d) 1 pound of foodwould have to trade bettween 50 and 75 values of suntan oil

1 pound of suntan oil would have to trade between 100 and 200 values of food

e)Happy land will gain 25 gallons of suntan oil by giving 25 pounds of food and active land will loose 25 gallons of suntan oil by giving 25 pounds of food.