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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If Joe and Carla plan to specialize and trade, what should Joe produce?
A
Only Scrambled Eggs
B
Only Fresh Squeezed
C
6 Eggs and 4 OJ
D
2 Eggs and 4 OJ
Verified step by step guidance1
Identify the production possibility frontiers (PPFs) for both Joe and Carla from the graphs. Joe's PPF shows a trade-off between Fresh Squeezed Orange Juice and Scrambled Eggs, as does Carla's.
Determine the opportunity cost for each individual. For Joe, calculate the opportunity cost of producing one more unit of Scrambled Eggs in terms of Fresh Squeezed Orange Juice forgone, and vice versa. Do the same for Carla.
Compare the opportunity costs between Joe and Carla for each good. The person with the lower opportunity cost for a good should specialize in that good.
Based on the opportunity costs, decide which good Joe should specialize in producing. If Joe has a lower opportunity cost for Scrambled Eggs compared to Carla, he should specialize in Scrambled Eggs.
Conclude the analysis by determining the optimal production choice for Joe, which is the good he should produce to maximize the benefits from trade with Carla.
Related Practice
PPF - Comparative Advantage and Trade practice set
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