Refer to Figure 3-14. Without trade, Arturo produced and consumed 240 tacos and

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Refer to Figure 3-14. Without trade, Arturo produced and consumed 240 tacos and 120 burritos and Dina produced and consumed 100 tacos and 150 burritos. Then, each person agreed to specialize in the production of the good in which they have a comparative advantage and trade 260 tacos for 156 burritos. As a result, Arturo gained

5. Chapter mank07t, Section.18, Problem 150 Figure 3-14 Arturo's Production Possibilities Frontier Dina's Production Possibilities Frontier 500 450 400 350 300 250 300 250 200 150 100 50 150 100 50 50 100 150 200 250 300 350 400 50 100 150 200 250 300 350 400 o Refer to Figure 3-14. Without trade, Arturo produced and consumed 240 tacos and 120 burritos and Dina produced and consumed 100 tacos and 150 burritos. Then, each person agreed to specialize in the production of the good in which they have a comparative advantage and trade 260 tacos for 156 burritos. As a result, Arturo gained A. 20 tacos and 36 burritos and Dina gained 160 tacos and 6 burritos. B. 260 tacos and 144 burritos and Dina gained 140 tacos and 156 burritos. C. 20 tacos and 24 burritos and Dina gained 40 tacos and 6 burritos D. 260 tacos and 156 burritos and Dina gained 260 tacos and 156 burritos

Explanation / Answer

Arturo produced and consumed 240 tacos and 120 burritos

Dina produced and consumed 100 tacos and 150 burritos

Trade agreed upon is 260 tacos = 156 burritio.

Arturo produced tacos as it specialized in that, where as Dina produced burrito has she had comparitve advange in it.

So, looking at arturo's budget constraint we see that if it produces only tacos, it can produce 400 tacos.

whereas Dina will produce 200 buritos.

Now arturo can trade 260 tacos for 156 burrito as the consumption for him is 240 burrito. And since he will get 156 burrito whereas his consumption is only 120 burrito, he will gain 156-120=36 burrito.

Same way dina why getting 260 tacos while consumption was just 100 tacos gained 160 tacos!

hence we go for option A)

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Refer to Figure 3-14. Without trade, Arturo produced and consumed 240 tacos and

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