Hand In Assignment:

1a) (a)
1b) (c)
2a) Suppose Country A is producing bananas along the x-axis and coconuts along
the y-axis. Let the opportunity cost of producing 1 unit of banana be 0.5 units of
coffee. From the point x=0, the country is able to produce its maximum quantity
of coffee. As the country proceeds to produce units of bananas that is shifting
to the right 1 unit- the quantity of coffee that can be produced is reduced by 0.5
units. This continues to occur until no coffee is produced and a maximum
quantity of bananas is achieved, thus producing a straight line with a constant
slope or gradient. Thus the opportunity cost is equivalent to the gradient of the
line as it was utilised to construct the Production Productivity Curve.
2b) As the production of goods along the x-axis increase, new agents must be
introduced as resources may be scarce. There is an order to this introduction of
new agents known as the low hanging fruit principle, where an agent with
the lowest opportunity cost of producing a product along the x-axis is introduced
first, followed by the second lowest and so on. This results in increasing
opportunity costs, and therefore steeper slopes which causes a PPC to bow out.
2c) The PPC for this economy will be bow shaped due to a scarcity of resources. If
the PPC is incomplete, it indicates that resources are scarce and that new agents,
with higher opportunity costs, must be introduced in order to complete the PPC
curve. This results in increasing opportunity costs and therefore forms kinks
which are bow shaped and concaved to the origin.
3a)
1 Metre of Cloth
1 Litre of Wine

Oliver
0.5 hours
0.25 hours

Nellie
1 hour
0.2 hours

3b) Oliver has the absolute advantage in producing cloth as he requires less time
than Nellie.
Opportunity Cost
1 metre of cloth
1 litre of wine
Oliver
2 litres of wine
0.5 metres of cloth
Nellie
5 litres of wine
0.2 metres of cloth
From the opportunity Cost table, Oliver has a comparative advantage in
producing cloth due to the lower opportunity costs he has in producing it of 2
litres of wine in comparison to Nellies opportunity cost of 5 Litres of wine.
3c) If Nellie were to specialise, she should specialise in producing wine. She has a
comparative advantage over Oliver with a lower opportunity cost of 0.2 metres
of cloth in comparison to his higher opportunity cost of 0.5 metres of Cloth.
4a) A PPC or Production Possibility Curve highlights all the maximum
combinations of goods that can be produced when given and available resources
are utilised efficiently.

4b)