Consider a Country That Has Two Industries

question 40

Multiple Choice

Consider a country that has two industries. In the north, they grow wild rice, which requires a lot of rainfall. In the south, they grow wheat, which requires just a moderate amount of rainfall (too much rainfall is bad for wheat production) . One year, there is a record rainfall. This will result in

• A)a parallel shift inward of the production possibilities frontier.
• B)a parallel shift outward of the production possibilities frontier.
• C)the production possibilities frontier rotating, with the wild rice intercept increasing, and the wheat intercept decreasing.
• D)the production possibilities frontier rotating, with the wild rice intercept decreasing, and the wheat intercept increasing.
• E)the production possibilities frontier becoming linear.

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Definitions:

Security Market Line

A representation in financial markets that shows the relationship between risk (as measured by beta) and the expected return of a portfolio or individual security.

Stock Market Equilibrium

A situation where the supply of stocks for sale is equal to the demand, and hence the market price is stable.

Required Rates of Return

The minimum annual percentage earned by an investment that will persuade the individual or company to invest.

Security Market Line

A graphical representation that shows the expected return of assets as a function of their systemic risk, represented by beta.