Multiple Choice
If Joe and Carla plan to specialize and trade, what should Carla produce?
2. Introductory Economic Models
PPF - Comparative Advantage and Trade
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Assume that Joe and Carla will trade Scrambled Eggs and Fresh Squeezed Orange Juice at a rate of 1.2 Eggs for 1 OJ. If Joe's consumption after trade includes six eggs, what will be Carla's consumption after trade?
A
6 Eggs and 6 OJ
B
0 Eggs and 12 OJ
C
6 Eggs and 7 OJ
D
1.2 Eggs and 11 OJ
Verified step by step guidance1
Identify the initial consumption possibilities for Joe and Carla from the graphs. Joe's graph shows a trade-off between scrambled eggs and orange juice, and so does Carla's.
Understand the trade rate given in the problem: 1.2 scrambled eggs for 1 orange juice. This means for every 1 orange juice Carla gives to Joe, she receives 1.2 scrambled eggs in return.
Determine Joe's consumption after trade. The problem states Joe consumes 6 scrambled eggs after trade.
Calculate how many orange juices Joe must have traded to get 6 scrambled eggs. Since the trade rate is 1.2 eggs per orange juice, divide 6 eggs by 1.2 to find the number of orange juices Joe traded.
Use the number of orange juices Joe traded to determine Carla's consumption. Subtract the number of orange juices traded from Carla's initial orange juice endowment to find her remaining orange juice, and add the scrambled eggs she received from Joe to her initial scrambled eggs.
Related Practice
PPF - Comparative Advantage and Trade practice set
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