The production possibilities frontiers in the figure to the right show how many
ID: 1199715 • Letter: T
Question
The production possibilities frontiers in the figure to the right show how many bananas and coconuts you (Y) and your neighbor (N) can consume without trade. Suppose you are initially consuming 7 bananas and 3 coconuts and your neighbor is initially consuming 5 bananas and 5 coconuts. Now, suppose you and your neighbor specialize by each only producing the good for which you have a comparative advantage. You give your neighbor half of your production for half of what he produces. (Enter all responses as integers.) If you trade with your neighbor, then you will have additional coconut(s) after the trade and additional banana(s). At the same time, your neighbor will be able to consume additional banana(s) and will be as a result of trade.Explanation / Answer
If you trade with your neighbour then you will have 2 additional coconuts and 2 additional banans.
At the same time your neighbour will be able to consume 3 additional banans and will be better off as a result of trade.
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