Question

The following graph shows the production possibilities frontier for the imaginary country of Contente under conditions of increasing costs. In the absence of trade, the relative cost of corn in Contente in terms of phones (or the marginal rate of transformation (MRT) of corn into phones) is shown by the slope of line t1, tangent to the production possibilities frontier at point A. 300 270 Consumption After Trade 240 210 180 В с CORN (Bushels) 150 120 90 60 30 0 0 2 4 6 14 16 18 20 8 10 12 PHONES Which of the following most accurately describes Contente's economy in the absence of trade? o Contente produces 234 bushels of corn but consumes only 180 bushels of corn. o Contente produces and consumes 6 phones and 180 bushels of corn. o Contente produces and consumes 6 phones and 234 bushels of corn. o Contente consumes 6 phones and 234 bushels of corn. o Contente produces 6 phones and 234 bushels of corn. bushels of corn in order to At point A, the slope of line ti reveals that contente must forego produce 1 phone. (Hint: Select a line to see its slope.) Suppose that contente recognizes that it has a comparative advantage in the production of phones. Contente decides to specialize in making phones and enters international trade. The international terms of trade (the price of corn in terms of phones) are shown by the slope of the line 12, tangent to the production possibilities frontier at point B. The slope of 12 reveals that now Contente foregoes| bushels of corn in order to produce 1 phone. This means that the relative cost of phones in terms of corn Assume that contente chooses to consume the same number of phones as it did in the absence of trade. On the previous graph, use the purple point (diamond symbol) to indicate Contente's consumption after trade. According to the graph, Contente's production gain from specialization is and its consumption gain from trade is

Answer 1

= 0: The following graph shows the production possibilities frontties sol The marginal date of transaction (MRT). Du aab sence of trade contente produce and consumes 6 phones and 234 bushes of corn..because at this point, t, is tangent to PPF which gives the equilibrium condition. ty At point A, the slope of line to that contente must forego 6 bushels of cornin order to produce a phone. *) The slope ta reveals that now contente foregues 8 bushels of cornin order to produce I phone. This means that the relative cost of phone in term of 아 corn. #1 According to the graph, contente's production gain toom specialization is Also 66. and its So consumption after trade for rice is 180 +120 = 300 So consumption gain of rice 300 -234 =664

D 300 270 240 А A 210 1 180 *B C -ti 150 CORN (Bushels) ! 120 1 i 1 90 1 1 60 1 .tz 1 30 2. 2 4 12 14 16 18 20 6 8 10 phones