Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 12

Suppose consumers in the economy described in problem wished to consume X and Y in equal amounts.
a. How much of each good should be produced to meet this goal? Show this production point on a graph of the production possibility frontier.
b. Assume that this country enters into international trading relationships and decides to produce only good X. If it can trade one unit of X for one unit of Y in world markets, what possible combinations of X and Y might it consume?
c. Given the consumption possibilities outlined in part b, what final choice will the consumers of this country make?
d. How would you measure the costs imposed on this country by international economic sanctions that prevented all trade and required the country to return to the position described in part a?
Problem Suppose an economy has a production possibility frontier characterized by the equation X 2 + 4Y 2 = 100
a. In order to sketch this equation, first compute its intercepts. What is the value of X if Y = 0? What is the value of Y if X = 0?
b. Calculate three additional points along this production possibility frontier. Graph the frontier and show that it has a general elliptical shape.
c. Is the opportunity cost of X in terms of Y constant in this economy, or does it depend on the levels of output being produced? Explain.
d. How would you calculate the opportunity cost of X in terms of Y in this economy? Give an example of this computation.