Answers to the PPF problems at the end of the review packet:
Germany and Poland problem:
This is an output problem (Foregone item goes on top!)
Germany: 1500 computers, 500 tons of grain opportunity cost of computers (forego grain): 1/3 tons of grain, opportunity cost of grain (forego computers): 3 computers
Poland: 400 computers, 400 tons of grain, opportunity cost of computers (forego grain): 1 ton of grain, opportunity cost of grain (forego computers): 1 computer
In your PPF make sure you have the following:
-straight line frontiers
-frontiers labeled for each country
-numbers for amounts produced (Germany: 1500 computers, 500 tons of grain, Poland: 400 computers, 400 tons of grain)
Absolute advantage in computers: Germany (greater number of outputs with the same number of inputs)
Comparative advantage in grain production: Poland because the opportunity cost of producing grain is less for Poland than it is for Germany
If Poland could only produce one ton of grain/worker (100 tons of grain total), Poland’s opportunity cost of production would change. The opportunity cost of producing computers for Poland would be 1/4 tons of grain. The opportunity cost of producing grain is 4 computers. Therefore, Poland would now have a comparative advantage in computer production because the opportunity cost of producing computers is less than Germany’s.
Argentina and Peru problem:
Argentina has a comparative advantage in beef production (opp. cost of beef is 1/2 fruit compared to Peru’s 1 fruit).
Peru will export fruit because it has a comparative advantage in fruit production (opportunity cost of fruit production is smaller for Peru than it is for Argentina).
The price of fruit, measured in beef, is between 1 and 2 metric tons of beef.
Absolute advantage in beef: Argentina because it can produce more beef with the same amount of inputs as Peru.