Reference no: EM131405668

1. Suppose that an economy's PPF can be drawn with manufactured goods (M) on the verticalaxis and agricultural goods (A) on the horizontal axis. Using separate PPF graphs, show theeffects of the following historical events on the United States' PPF.

a. In 1959, Alaska and Hawaii gained statehood and became a part of the United States.

b. The Pemberton Mill was a large factory in Lawrence, Massachusetts, which collapsed withoutwarning on January 10, 1860 in what is likely "the worst industrial accident in Massachusettshistory" and "one of the worst industrial calamities in American history"

c. Throughout the 1970s and 1980s, genetic engineering increased crop yields in the UnitedStates.

d. Hurricane Irene devastated farms and crops from North Carolina to Vermont.

2. Suppose that in the next 24 hours Ontario and Vermont each produce two goods, maple syrup(M) and hockey sticks (H). It takes Ontario 6 hours to produce a gallon of maple syrup and 12hours to produce a hockey stick. It takes Vermont 2 hours to produce a gallon of maple syrupand 8 hours to produce a hockey stick.

a. Which region has an absolute advantage in maple syrup production? Which region has anabsolute advantage in hockey stick production?

b. Find the opportunity costs of each good for both Ontario and Vermont

c. Based on comparative advantage, which good should be produced by Ontario? Vermont?

d. If the rate of trade is 1 hockey stick for 3 gallons of maple syrup, does Ontario benefit fromthe trade? What about Vermont? Use PPFs and CPFs to show that. Put Maple syrup on thehorizontal axis and hockey sticks on the vertical axis.

e. (BONUS QUESTION) If the rate of trade is 1 hockey stick for 2 gallons of maple syrup, doesOntario benefit from the trade? What about Vermont? What if the rate of trade is 1 hockey stickfor 4 gallons of maple syrup? Can you find the range for the rate of trade in which both Ontarioand Vermont can benefit from the trade?