Homework SourseConsider an economy with two goods apples A and bananas B tw
Consider an economy with two goods, apples (A) and bananas (B), two factors of production, labor (L) and capital (K), and two countries, Home and Foreign. Both countries engage in trade, facing prices of $30 per apple (basket) and $20 per banana (basket). The table below shows different points in this economy\'s PPF, and for each apple-banana basket pair, its associated slope. Suppose also that this economy spends 30% of its income in apples and 70% in bananas.
QA
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
QB
40.00
39.95
39.80
39.55
39.19
38.73
38.16
37.47
36.66
35.72
Slope
0.00
-0.10
-0.20
-0.30
-0.41
-0.52
-0.63
-0.75
-0.87
-1.01
QA
10.00
11.00
12.00
13.00
14.00
15.00
16.00
17.00
18.00
19.00
QB
34.64
33.41
32.00
30.40
28.57
26.46
24.00
21.07
17.44
12.49
Slope
-1.15
-1.32
-1.50
-1.71
-1.96
-2.27
-2.67
-3.23
-4.13
-6.08
How much of each good will this economy produce and what is the total value of production in this economy? Explain.
| QA | 0.00 | 1.00 | 2.00 | 3.00 | 4.00 | 5.00 | 6.00 | 7.00 | 8.00 | 9.00 |
| QB | 40.00 | 39.95 | 39.80 | 39.55 | 39.19 | 38.73 | 38.16 | 37.47 | 36.66 | 35.72 |
| Slope | 0.00 | -0.10 | -0.20 | -0.30 | -0.41 | -0.52 | -0.63 | -0.75 | -0.87 | -1.01 |
| QA | 10.00 | 11.00 | 12.00 | 13.00 | 14.00 | 15.00 | 16.00 | 17.00 | 18.00 | 19.00 |
| QB | 34.64 | 33.41 | 32.00 | 30.40 | 28.57 | 26.46 | 24.00 | 21.07 | 17.44 | 12.49 |
| Slope | -1.15 | -1.32 | -1.50 | -1.71 | -1.96 | -2.27 | -2.67 | -3.23 | -4.13 | -6.08 |
Solution
The price ratio is 30/20=1.50.At equilbrium price ratio is tangent to slope of production possibility frontier. The slope of ppf is 1.50 when 12 apples and 32 bananas are consumed. Total value of priduction=12(30)+32(20)=100
Note consumption will occur at higher point due to trade. Must say this information that you provided is not complete. There must be other information related to production of other country.
