Quiz: Quiz 1 - Ch. 1,2 Time Remaining This Question: 1 pt 2 of 17 (17 complete)
ID: 1157476 • Letter: Q
Question
Quiz: Quiz 1 - Ch. 1,2 Time Remaining This Question: 1 pt 2 of 17 (17 complete) Y Thi The production possibilities frontiers in the figure to the right show how many bananas and coconuts you () and your neighbor (N) can consume without trade. Suppose you are intially consuming 6 bananas and 6 coconuts and your neighbor is initially consuming 5 bananas and 5 coconuts. Ur PPF Now, suppose you and your neighbor specialize by each only producing the good for which you have a comparative advardage Yau give your neighbor half of your production for half of what he produces. (Enter all responses as indingers) f you trade with your neighbor, then you will have l addiional coconutis) afer the trade and Iil addional bananas) At the same time, your neighbor will be able to consume[]addnonal banana(s) and wil be rade better oreas aresult or worse of better off Neighbor's PPF 0 2481 Quantity of bananas Enter your answer in each of the answer boxes MacBook AirExplanation / Answer
Initial consumption: Me(M) : Banana(B) - 6 ; Coconuts(C) - 6
Neighbour(N) : B - 5 ; C - 5
Opportunity cost of producing B : For M : 8B = 24C => B = 3C
For N : 30B = 6C => B = 0.2C
Since M's opportunity cost of producing B is higher than N, M specializes in producing C and N specializes in producing B.
After specialization production:
M = 24C
N = 30B
We trade 12C for 15B.
Post trade consumption:
M : 12C ; 15B
N : 12C ; 15B
If I trade with your neigbour, I will have 6 additional coconuts after the trade and 9 additional bananas. At the same time, my neigbour will be able to consume 10 additional bananas and will be better off as the result of the trade. My neigbour will also be able to consume 7 additional coconuts.
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