It tells us the quantity of cheese that the United States could produce if it devoted all of its labor force ( L) to the production of cheese. In this case, the solution is Q C = L a L C. It tells us the quantity of wine that the United States could produce if it devoted all of its labor force ( L) to the production of wine. In this case, the solution is Q W = L a L W. The equation is easily plotted by following three steps. We plot the PPF on the diagram in Figure 2.1 "Production Possibilities" with Q C on the horizontal axis and Q W on the vertical axis. The PPF equation can be rewritten as Q W = L a L W − ( a L C a L W ) Q C. With some algebraic manipulation, we can rewrite the PPF equation into the standard form for an equation of a line, generally written as y = mx + b, where y is the variable on the vertical axis, x is the variable on the horizontal axis, m is the slope of the line, and b is the y-intercept. The PPF equation is a linear equation-that is, it describes a line. This equation has three exogenous variables ( a LC, a LW, and L) that we assume have known values and two endogenous variables ( Q C and Q W) whose values must be solved for. Plugging these values for L C and L W into the labor constraint yields the equation for the PPF: a LC Q C + a LW Q W = L. First, note that the production functions can be rewritten as L C = a LC Q C and L W = a LW Q W. ![]() In the Ricardian model, the PPF is linear. Using the two production functions and the labor constraint, we can describe the production possibility frontier (PPF) The set of all output combinations that could be produced in a country when all the labor inputs are fully employed. ![]() Learn how the plot of the labor constraint yields the production possibility frontier.How big is the surplus or shortage at $4.90?There is a surplus of 18 thousand bushels. How big is the surplus or shortage at $3.40?There is a shortage of 23 thousand bushels. Demand Graph : ( 1st Column of Bushels Demand, Price per Bushel highest to low)Supply Graph ( 2nd column, price per bushel, low to high) c. ![]() ![]() Be sure to locate the equilibrium price and equilibrium quantity. Graph the demand for wheat and the supply of wheat. To find the surplus or shortage take 1st Column of Bushel Demanded - 2nd Column of Bushel demand = Surplus or Shortage a.What is the equilibrium price in this market?$4.00 per bushelAt what price is there neither a shortage nor a surplus?$4.00 per bushel b. D.) is production at a point outside the production possibilities curve currently possible?No Could a future advance in technology allow production beyond the current production possibilities curve?Yes Could international trade allow a country to consume beyond its current production possibility curve? Yesįill in the surplus-shortage column (gray-shaded cells) and use it to confirm your answers. If the economy characterized by this production possibilities table and curve is producing 3 automobiles and 20 forklifts, what could you conclude about its use of available resources? The economy is underutilizing its available resources. Show these data graphically ( plot the coordinates from table E-A) Upon what specific assumptions is this production possibilities curve based? Full employment, fixed supplies of resources, fixed technology, and two goods b.) If the economy is at point C, whats is the (opportunity) cost of 2 more automobiles? 9 What is the (opportunity) cost of 6 more forklifts? 2 Which characteristic of the production possibilities curve reflects the law of increasing opportunity costs: its shape or its length? Shape C).
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