# Finance

Essay by   •  February 3, 2016  •  Coursework  •  1,048 Words (5 Pages)  •  1,057 Views

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Question one

Each nation has 900 units of resources available. To produce one unit of output the following amount of input is required

 Jets Lumber Brazil 6 3 India 10 5

1. Determine the output possibilities for each nation
 Jets Lumber Brazil 100 50 India 60 30

1. Graph the PPC for each nation (both nations on single graphs)

PPC for Brazil

Brazil PPC[pic 1][pic 2]

100[pic 3]

60[pic 4]

India PPC[pic 5]

30                         50[pic 6]

1. According to theory of absolute advantage, which good(s) should Brazil produce and export? And why (proof).

Absolute advantage:  if your country uses fewer resources to produce a given unit of output than the other country. Brazil has absolute advantage in both cases since it uses fewer resources to produce a unit of both products as compared to India.

1. According to theory of relative advantage which good (s) should Brazil produce and export and why (proof)

Comparative advantage:  if your country can produce the output at a lower marginal cost in terms of other goods foregone than the other country

Marginal cost

Brazil = 50/100 = 0.5

India = 30/60 = 0.5

Therefore, both have comparative advantage since they have similar marginal cost

Question two

Each country has 1200 units of resources available. To produce unit of output, the following amount input requirement

 Automobile Machine Tools Mexico 6 4 Germany 4 3

1. Determine the output possibilities for each nation
 Automobile Machine Tools Mexico 120 40 Germany 171.25 73.40
1. Graph the PPC for each nation (both nations on single graphs)

Germany PPC[pic 7][pic 8]

171.25[pic 9]

120[pic 10]

Mexico PPC[pic 11]

40                       73.40[pic 12]

1. According to theory of absolute advantage, which good(s) should Mexico produce and export? And why (proof).

Absolute advantage:  if your country uses fewer resources to produce a given unit of output than the other country. Mexico does not have any absolute advantage in production of any commodity since it uses many resources in producing both products

According to theory of relative advantage which good (s) should Mexico produce and export and why (proof)

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