Suppose that before trade opens up, Brazil is at a point on its production possibility curve...
Suppose that before trade opens up, Brazil is at a point on its production possibility curve (PPC) where it produces 20 apples and 20 cars. Once trade opens up, the price of a car becomes two apples. In response, Brazil moves along its PPC to a new point where it is producing 30 cars and 10 apples. Is Brazil now better off? Explain.
Homework Answers
Ans. Brazil is now better off because when it moves to a new point , it have produced 10 cars more and have up 10 apples. Now it is given that Price of Car becomes 2 apples , this means that in order to produce 10 cars , it have to give up 20 apples ( simple maths ) , but in reality instead of giving up 20 apples , it's only giving up 10 apples. Hence Brazil is better off.
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Suppose that before trade opens up, Brazil is at a point on its
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