DISCUSSION QUESTIONS DURING LECTURE

QUESTION 1

Nation A's production in Nation B's production

1 day in 1 day
Computers 100 Computers 120
Software 140 Software 150
Table 1
By referring to Table 1, answer these questions:

Two nations can produce computers and software in the amounts given in the Table 1. Does either
nation have an absolute advantage in producing the products? Which nation has a comparative
advantage in computers? Which nation has a comparative advantage in software? Explain your
answers.

QUESTION 2

Use the following information in Table 2 to answer question (1) until question (3)

Ethanol Food crops

(barrels per day) (tons per day)
70 and 0
64 and 1
54 and 2
40 and 3
22 and 4
0 and 5

Table 2

Brazil produces ethanol from sugar, and the land used to grow sugar can be used to grow food
crops. Suppose that Brazil’s production possibilities for ethanol and food crops are as in the table.

1. a. Draw a graph of Brazil’s PPF and explain how your graph illustrates scarcity.
b. If Brazil produces 40 barrels of ethanol a day, how much food must it produce to achieve
production efficiency?
c. Why does Brazil face a tradeoff on its PPF?

2. a. If Brazil increases its production of ethanol from 40 barrels per day to 54 barrels per day,
what is the opportunity cost of the additional ethanol?
b. If Brazil increases its production of food crops from 2 tons per day to 3 tons per day, what
is the opportunity cost of the additional food?
3. Does Brazil face an increasing opportunity cost of ethanol? What feature of Brazil’s PPF
illustrates increasing opportunity cost?