Deliverable Length: 800-1,000 words
Suppose that there are two products: clothing and soda. Both Brazil and the United States produce each product. Brazil can produce 100,000 units of clothing per year and 50,000 cans of soda. The United States can produce 65,000 units of clothing per year and 250,000 cans of soda. Assume that costs remain constant. For this example, assume that the production possibility frontier (PPF) is a straight line for each country because no other data points are available or provided. Include a PPF graph for each country in your paper. Chapter 5 of the Suranovic text is a good reference for this task.
Brazil 100,000 units of clothing per year and 50,000 cans of soda.
United States 65,000 units of clothing per year and 250,000 cans of soda.
Complete the following:
To assist in your thinking and discussion, additional questions to consider include:
Production Possibility Frontier
Production possibility curve also known as PPF is the type of graph that shows the different production prospects of two merchandises when the available resources are permanent. Changing the manufacture quantity of one product is only be affected by foregoing the manufacture of the other product and vice versa. PPF is also known as production possibility curve or product transformation curve, (McConnell & Brue, 2005). A PPF shows the extreme likely production mixtures that two products or services an economy can attain if all the available resources are employed fully and productively.
Production Possibility Frontier of Brazil
Labor intensive goods
Among the two commodities, the cloth is the labor-intensive product. A labor-intensive describes any production course that wants the higher input of labor than the input of capital regarding cost. Both Brazil and United States has two different production possibility curves. These curves illustrate the concept of a country utilizing its most precious resources to produce a product while at the same time foregoing production of other commodities that are not so necessary. The curves represent efficiency and inefficiency in production process between the two countries.
From the given two production possibility frontiers, it can be seen that Brazil is more efficient in the production of clothing than it is in the production of soda. From the frontier, it is evident that clothes are more labor-intensive than soda. From the two PPFs, Brazil is more labor-abundant than the United States because it can produce many units of clothes compared to the United States. Availability of labor makes it easy to produce more units of clothes.
Capital intensive goods
On the other hand, United States produces more units of soda than clothing. From the production possibility frontier, we can conclude that soda is capital intensive good, more than clothes. Since the United States is more capital abundant intensive than Brazil, then the production of soda is more efficient in the country compared to production of garments.
The Production Possibility Frontier of Brazil without Trade
The Production Possibility Frontier of United States without Trade
The Production Possibility Curve for United States without Trade.
The marginal rate of transformation impact
The degree at which the two countries can determine how much units of clothes and soda they want to produce respectively depends on their marginal rate of production transformation. The marginal rate of transformation (MRT) is demarcated as the number of elements of a good y that have to be foregone to yield an additional unit of good z while maintaining the production process used and the level of knowledge applied. It encompasses the relationship amid the manufacture of dissimilar goods, while the level of production remains the same. MRT correlates well to PPF. (Ferguson, 1975). The slopes if the PPF curves show how reorganization of the yielding process can end with different products for a different product, given the same quantity of production inputs.
For Brazil, the marginal rate of transformation between clothes and soda is 2. This means that for two units of clothes to be foregone, the country will be able to produce one extra unit of soda. For the country, more emphasis is put on the production of clothes rather than soda because the country is labor-abundant therefore it can efficiently produce labor-intensive commodities. A labor abundant country is a country that has more labor than other input units production process. On the other hand, for the United States, the MRT is 3. This implies that3 units of soda have to be foregone for a single extra unit of clothes to be produced. The MRT also a country to examine the opportunity cost to be able to yield one additional product. A good example is the United States. The country can only produce 32,500 units of cloth and 125,000 units of soda by itself without engaging in trade, meaning that the country can only yield the entities of each product by the available production units.
From the PPF curves of the two countries, we can conclude the following.
The United States is the capital-abundant nation in this context. A capital-abundant country is the one that high plenty availability of money needed for production than all other input factors. The United States exports more units of soda than units of clothing since it can produce more capital-intensive goods. A country that is said to be capital intensive is the one where the value of money compared to the value of labor in the same country is high.
A nation is defined labor-abundant one if the availability of labor in the country is high compared to other production factors. It is the number of workers that determine the labor inputs of production. Brazil is an example of a labor-abundant country since it produces more units of labor-intensive commodities compared to other inputs of production.
Can Trade Help to Reduce Poverty in Brazil?
Trade will help to decrease deficiency in Brazil and other emerging nations since a well-functioning market helps in achieving sustainable economic growth. A labor intensive country uses the benefit to grow labor-dependent industries to produce continue producing goods. By participating in trade will give Brazil the chance to moderate the value of inputs, to obtain finance via asset accumulation and upsurge the value of the countries products in the world market.
McConnell, C.R. & Brue, S.L. (2005). Economics: principles, problems, and policies. McGraw-Hill Professional.
Ferguson, C. E. (1972). Microeconomic Theory (3rd Ed.). Homewood, Illinois: Richard D. Irwin, Inc.
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