Question

Use the following graph to answer questions 1 and 2: Food Clothing 1. The combination of food and clothing shown by point G on the above graph: A) is not attainable, given society's available resources and technology. B) can be attained only if some of society's resources are unemployed. C) suggests that the law of increasing relative costs is not relevant in this case. D) results only because society allocates its resources inefficiently. 2. The figure above shows the production possibilities frontier for a country. If a country is producing at point F, A) then the production of clothing and food is at a maximum. B) then the technology associated with producing clothing and food is advancing. C) it shows an attainable combination with unemployed resources

Answer 1

1. The combination of food and clothing shown by point G is not attainable , given society's available resources and technology because it lies outside the PPF. Hence, option(A) is correct.

2. If a country is producing at point F , it shows an attainable consumption with employed resources because point F lies inside the PPF which means that the economy is not fully utilizing the resources. Hence, option(C) is correct.

3. If whenever one variable increases , another variable also increases , then these two variables are positively related. Hence,option(A) is correct.

4. The opportunity cost of producing a furnace in country Y = 12/6 = 2 solar panels. Hence, option(B) is correct.

5. The opportunity cost of producing a furnace in country X = 8/6= 4/3 = 1.3 solar panels. Hence, option(D) is correct.

6. Because Country X has a lower opportunity cost for producing furnaces , this implies Country X has a comparative advantage in producing furnaces and Country Y has a comparative advantage in producing solar panels. Hence, option(B) is correct.

7. The price that would benefit both countries from trade is which lie between 1.3 solar panels per furnace and 2 solar panels per furnace. And here, 1 solar panel is trade for 2 furnaces which means price is 1/2 solar panels per furnace which does not lie in the given range. It benefits only country Y because it is less than country Y's opportunity cost. Hence, option(B) is correct.