Production Possibility Frontier

In this Assessment, your role will be a marketing specialist working for a production company. It is your job to explain to investors how the current status of the supply will meet the changing demand for the products, and the change in the production possibilities will be able to meet the market demand. With this background information and based on the following hypothetical examples provided below, compile answers that effectively address the supply and demand and the production possibility frontier. This Assessment requires a combination of short paragraph answers, computations, and completion of a 450–500 word essay.

Answer the following questions.

Section 1: Economic Models and Comparative Advantage

According to the author, economists approach economic problems with economic models, and these models will help familiarize you with how economists approach economic problems. The models also help explain how individuals and countries gain from trade. Accordingly, trade allows people to specialize in the production of goods and services for which they have comparative advantages and, then trade for goods and services that other people produce based on their comparative advantages.

The questions deal with the application of the economic models and the roles of comparative advantage in the gains from trade.

1. Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade between individuals or countries? Is it absolute advantage or comparative advantage? Why?

2. Assume two students must prepare a presentation for their marketing class. As part of their class presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It would take Larry 10 hours to do the required calculation and 10 hours to prepare the slides. It would take Kate 12 hours to do the series of the calculations and 20 hours to prepare the PPT slides.

A. How much time would it take the two students to complete the project if they divide the two tasks equally?

B. How much time would it take the two students to complete the project if they use comparative advantage and specialize in calculating or preparing slides?

C. If Larry and Kate have the same opportunity cost of $5 per hour, is there a better solution than for each to specialize in calculating or preparing slides?

3.  Assume there are only two countries in the world, and the two countries face the following production possibilities frontiers. Further assume that the two countries produce popcorn and peanuts.

Country A’s Production Possibilities Frontier      Country B’s Production Possibilities Frontier

A. Assume that country A and country B decide to use half of the resources in the production of each good. Indicate the points of the maximum output of each good on the graphs for each country as point A under such resource use.

B. Assume the two countries choose autarky and do not trade. What would be the total world production of popcorn and peanuts under the autarky?

C. Assume that each country decides to specialize in either popcorn or peanut based on its respective comparative advantage. Under the specialization, what is the total production of popcorn and peanuts?

D.  Assume country A and B decide to trade 100 units of popcorn for 100 units of peanuts, show on the graphs the gain each country receives from trade. Label these points on the two graphs “B.”

Section 2: Supply and Demand Model and PPF

This section deals with the Production Possibility Frontier and market forces of supply and demand models, as well as, the impacts of government policies on the interactions of supply and demand in the market economy.

1. Given the table below, graph the demand and supply curves for flashlights. Make certain to label the equilibrium price and equilibrium quantity.

Price	Quantity Demanded Per Month	Quantity Supplied Per Month
$5	6,000	10,000
$4	8,000	8,000
$3	10,000	6,000
$2	12,000	4,000
$1	14,000	2,000

a.   What are the equilibrium price and the equilibrium quantity?

b.   Suppose the price is currently $5. Explain what problem would exist in the market and calculate the size of that problem. What would you expect to happen to price?

c.   Suppose the price is currently $2. Explain what problem would exist in the market and calculate the size of the problem. What would you expect to happen to price?

2. Consider supply and demand for Maine lobsters indicated in the following tables to answers questions from a–e below. Suppose that the supply schedule of Maine lobsters is as follows:

Price of Lobster per Pound	Maine Quantity of Lobster Supplied (pounds)
$25	800
$20	700
$15	600
$10	500
$5	400

First, assume that Maine lobsters can be sold only in the United States. The U.S. demand schedule for Maine lobsters is as follows:

Price of Lobster per Pound	USA Quantity of Lobster Demanded (pounds)
$25	200
$20	400
$15	600
$10	800
$5	1,000

a.   Looking at both the schedules of supply and demand, as well as the graph of the demand and supply curve for Maine Lobsters, what is the equilibrium price of lobsters and the equilibrium quantity of lobsters demanded and supplied at that price?

b.   Second, suppose that Maine lobsters can also be sold in France. The French demand schedule for Maine lobsters is as follows:

Price of Lobster per Pound	Quantity of Lobster Demanded (pounds)
$25	100
$20	300
$15	500
$10	700
$5	900

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c.   What is the demand schedule for Maine lobsters now that French consumers can also buy them?

d.   Using the combined U.S. and French demand schedule, the U.S. demand schedule and the supply schedule, and the graph below, analyze the change in the market for lobsters. What will happen to the price at which fishermen can sell lobster? What will be the final output of lobsters?

e.   What will happen to the price paid by U.S. consumers? What will happen to the quantity consumed by U.S. consumers?

3. Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fresh fish. The accompanying table shows the maximum annual output combinations of potatoes and fish that can be produced. Obviously, given their limited resources and available technology, as they use more of their resources for potato production, there are fewer resources available for catching fish.

Year	Quantity of Potatoes (Pounds)	Quantity of Fish (Pounds)
A	1,000	0
B	800	300
C	600	500
D	400	600
E	200	650
F	0	675

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Examine the Maximum annual output options table above and the resulting Production Possibility Frontier Graph below and answer questions from a-e.

a.   Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes? Explain.

b.   What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds?

c.   What is the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds?

d.   Can you explain why the answers to parts b and c are not the same?

e.   What does this imply about the slope of the production possibility frontier?

Section 3: Economic Models Application

Now that you have segmented the components of the changes in supply and demand and the ability to meet demand, explain how the current status of the supply will meet the changing demand for the products, and the change in the production possibilities will be able to meet the market demand.