Pounds of Green Beans Po of Com Pounds of Green Pounds of Corn Beans 160 120 80

Question

Pounds of Green Beans Po of Com Pounds of Green Pounds of Corn Beans 160 120 80 40 80 60 10 40 30 40 60 20 Assume Jake consumes 20 pounds of green beans and 80 pounds of corm without trade. Also, assume that Jane consumes 40 pounds of green beans and 40 pounds of corn without trade. If the terms of trade are 1 pound of green beans for 3 pounds of corn, and Jake sells Jane 72 pounds of corn after specialization, then Jane consumes pounds of green beans and pounds of con. A)24, 88 ,4 956,72 D) 72, 56 22) Use the following circular flow diagram to answer the question below

Explanation / Answer

So, here the “terms of trade” are “1 pounds of green beans for 3 pounds of corn”, => under this TOT “Jake” will fully specialized towards “Corns”, => produces only “160 pounds of corns” and “Jane” will fully specialize towards “green beans”, => produces only “80 pounds of green beans”. So, if “Jake” sells “72 pounds of corns”, to get “72/3=24 pounds of green beans”. So, here “Jake” consumes “24 green beans” and “160-72=88 corns”. So, “Jane” consumes “80-24=56 green beans” and “72” corns. So, here correct answer is “C”.

b).

if pasta is an inferior good, => as income increases the demand for “pasta” must fall, => as the income increases, => there will be a left ward shift of the “pasta demand”. So, here “D” be the correct option.

c).

An increase in the price of product “B” leads to an increase in the demand for product “C”, => these goods are substitutes to each other. So, here the correct option is “C”.

d).

An increase in the demand for washing machines might be caused by “an expected increase in the price of washing machines”, => “A” be the correct option.

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