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 endowments of Joe and Carla from the graphs. Joe's graph shows a trade-off between scrambled eggs and orange juice, and similarly for Carla.
Understand the trade rate: 1.2 eggs for 1 orange juice. This means for every 1 orange juice Carla gives to Joe, she receives 1.2 eggs in return.
Determine Joe's consumption after trade: Joe has 6 eggs. Calculate how many orange juices he would have traded away to get these 6 eggs using the trade rate.
Calculate Carla's consumption after trade: Since Joe has 6 eggs, determine how many orange juices Carla must have given to Joe. Use the trade rate to find out how many eggs Carla has left after the trade.
Using the initial endowment and the trade details, calculate Carla's final consumption of eggs and orange juice after the trade.
Related Practice
PPF - Comparative Advantage and Trade practice set
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