Question

If a country directs all of its resources into producing one item, it can produce a maximum of either 2,000 computers or 10,000 books. The country can also produce a combination of these two goods, but the opportunity cost of producing either item will remain the same. They also have several beneficial trade partners. The residents of the country want to consume a combination of 1,500 computers and 8,000 books, assuming that no economic growth will occur in the near future. Which of the following is a viable option to achieve the resident's desired consumption? (1 point) The country could achieve this through either domestic production or trade. The country could only achieve this through trade. The country could only achieve this through domestic production. The country could not achieve this by any means.

Answer 1

Answer: The country could only achieve this through trade.

Explanation: The PPF is linear between (2,000 computers, 0 books) and (0 computers, 10,000 books), so the opportunity cost is 1 computer = 5 books. If the country produces 1,500 computers domestically it can only have 10,000 − 5(1,500) = 2,500 books, not 8,000 — so the desired bundle (1,500 C, 8,000 B) is outside the PPF and cannot be produced domestically.

With trade it is feasible. For example, specialize in books (produce 10,000 books) and trade 2,000 books for 1,500 computers (terms of trade = 1 computer = 1.33 books). Since 1.33 books per computer is better than the domestic cost of 5 books per computer, the country can obtain the desired consumption via trade.