The production possibilities frontiers in the figure to the right show how many
ID: 1162189 • 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 11 bananas and 2 coconuts and your neighbor is initially consuming 5 bananas and 5 coconuts. Your PPF Now, suppose you and your neighbor specialize by each only producing the good for which you have a comparative advantage. 5 14 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 coconuts) after the trade and additional banana(s). Neighbor's PPF At the same time, your neighbor will be able to consume 210 12 14 16 18 20 22 24 26 28 30 32 additional banana(s) and will be trade. V as a result of Quantity of bananas worse off better of Enter your answer in each of the answer boxes.Explanation / Answer
Your opportunity cost of producing a banana is 24/12= 2.
Neighbor's opportunity cost of producing a banana is 6/30= 0.2
Neighbor has lower opportunity cost of producing bananas so neighbour has comparative advantage in producing banana and you have comparative advantage in producing cocunuts.
Total bananas produced= 30
Total cocunuts produced= 24.
Half of each is traded.
You and neighbour consume 15 bananas and 12 cocunuts .
If you trade with your neighbour, then you will have 12-2= 10 cocunuts and 15-11= 4 additional bananas.
At the same time your neighbour will be able to consume 15-5= 10 additional bananas and will be better off.
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