Domestic
demand
Domestic
supply
World
price
A
1
A
2
A
4
Automobiles/year
Price of Automobiles
+ quota
A
3
P
w
a
b
c
d
e
f
Domestic
supply
P
w
+T
Answers to Problems
A
B
C
2,000
2,400
1,000
2,400
Refrigerators/yr
Televisions sets/yr
2,000
D
1,000
E
F
3,200
L
G
M
1,600
1,600
3,200
1. The maximum number of television sets this country can produce each year is 2,400.
The maximum
number of refrigerators is also 2,400.
2. The absolute value of the slope of the consumption possibilities line is the price of television sets divided
by the price of refrigerators, which is 1.0.
A shown in the diagram, a line with this slope is tangent to the
PPC at point G. The annual sale of 1,600 televisions and 1,600 refrigerators at $500 each yields revenue of
$1,600,000/yr.
Thus the country could consume a maximum of ($1,600,000/yr)/($500/set) = 3,200
television sets per year.
Similarly, it could consume a maximum of 3,200 refrigerators per year.
Doubling