PMBA 0608/ECON SATA
August 26, 2006
To complete this assignment you need to work in groups of 2 or 3. One of you will be the representative of Mexico and one or two of you will be representing the United States.
U.S. Representative (s) ______
Mexico’s Representative ______
The schedule below shows the different combinations of computers and beer your country can produce by itself given its technology and if it uses all of its resources efficiently.
U.S.Mexico
ComputersBeer (1000, 8 oz bottles)ComputersBeer (1000, 8 oz bottles)
050 4
14.51 3
242 2
33.53 1
434 0
52.5
62
71.5
81
90.5
100
- Draw two PPFs (The U.S. PPF must be drawn by the U.S. representative(s) and Mexico’s PPF must be drawn by Mexico’s representative.). Make sure that your measurements are consistent
- Which country has absolute advantage in production of beer? Which country has absolute advantage in production of computers? Which country has comparative advantage in production of beer? Which Country has comaprative advantage in production of computers
- As the representative of your respective country, choose a combination of computers and beer from the PPF that you wish your people to consume. This is known as the "best point." Label this point on your graph.as point “B”. (Note: this point represents the combination of beer and computers produced and consumed in each country in the absence of international trade.)
What is the United States’ initial "best point"? This point represents units of Computers and
_____ bottles of Beer.
What is Mexico’s initial "best point"? This point represents units of Computers and bottles of Beer.
4.As the representative of your respective country, you are always looking for ways to make your people better off than they currently are (Note: they will be better off if they consume no less of the goods and more of at least one good.) An advisor, David Ricardo, suggests that you separate your country's consumption decision from its production decision. Furthermore, you may now decide to choose a different production and consumption combination than the one chosen above as your "best point." In so doing, you can now trade some of your production for the production of the other country.
What combination of Computers and Beer does the United Statesproduce after trade is allowed? Show this point as point “P” on your graph.
Computers and bottles of Beer
What combination of Computers and Beer does Mexicoproduce after trade is allowed? Show this point as point “P” on your graph.
Computers and bottles of Beer
5.Describe a trade in which both countries can be made better off.
United States trades units/bottles of to Mexico for units/bottles of .
If each of you agree to this trade, please sign below to indicate your cooperation.
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6.What combination of Computers and Beer does the United Statesconsume after the above trade? Show this point on your graph as point “C”.
Computers and bottles of Beer
What combination of Computers and Beer does Mexicoconsume after the above trade? Show this point on your graph as point “C”.
Computers and bottles of Beer
7.Did this international trade benefit both countries? If your answer is yes, how is each country exactly better off? If your answer is no, why not?