Suppose both countries are producing at their production possibility frontier. I
ID: 1228896 • Letter: S
Question
Suppose both countries are producing at their production possibility frontier.
In self sufficiency (pre-trade) equilibrium the US produces 10 units of corn and Japan produces 18 units of wheat. Which of the following is true?
a. The US also produces 20 units of wheat
b. Japan also produces 8 units of corn
c. The US consumes 10 units of corn and Japan consume 8 units of corn
d. All of the above
e. A and B
Please explain the reasoning behind your answer.
Explanation / Answer
The PPC for the US is W+4C=60, the PPC for Japan is 2W+3C=60. a. If the US produces 10 corns: W = 60 - 4(10) = 20. This statement is true! b. If Japan produces 18 wheats: 3C = 60 - 2(18) -> C = 24/3 = 8. This statement is true! c. Given our answers from a and b, this must be true. Therefore, the answer is d, all of the above!