Mu Qin CON-1 86-Principles of Micro Eco uiz: Quiz 1 - Ch. 1,2 his Question: 1 pt
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Question
Mu Qin CON-1 86-Principles of Micro Eco uiz: Quiz 1 - Ch. 1,2 his Question: 1 pt CRN 54658 Time Rema frontiers in the figure to the right show how many bananas and coconuts you (Y) and your without trade. Suppose you are initially consuming 14 bananas and 3 coconuts and your 6 bananas and 8 coconuts Your PPF Now, suppose you and your neighbor specialize by each only producing the You give your neighbor haif of your production for half of what he produces. (Enter all responses as good for which you have a comparative f you trade with your neighbor, then you will have bananals) additional coconutis) after the trade andaddisional s 14 y as a result Neighbor's PPF Quanitity of bananasExplanation / Answer
From the PPF one can compute the opportunity cost of the production of both the commodities: for the neighbor: the opportunity cost for producing bananas is 10/30 =0.333 coconuts and 30/10=3 bananas for coconuts.
similarly, the opportunity cost for you to produce bananas is 16/24=0.666 coconuts and for coconuts 24/16 =1.5 bananas
since the neighbor has a low opportunity cost for producing bananas, they will specialize in bananas while you will specialize in the production of coconuts.
if you give up half you coconuts that is 12, you will get 15 bananas in return. neighbors bundle after the trade is 15 bananas and 12 coconuts. Thus you will have an additional banana and 9 extra coconuts compared to original endowment whereas your neighbor will have an additional 9 bananas and 6 coconuts. Thus there are gains from trade
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