Answered: You have decided to specialize in…

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter3: Interdependence And The Gains From Trade

Section: Chapter Questions

Problem 3PA

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Question

You have decided to specialize in gathering firewood while Friday has specialized in fishing. Your time allocation sliders are set to allocate all of your time to gathering firewood. Now, use the additional sliders to state how many logs you will trade to Friday and how many fish you want in return. You must select a trade that make both you and Friday better off than you were before specialization and trading. In other words, you must both receive more than 2000 calories of fish and 32 logs of firewood. Both you and Friday’s consumption point is displayed on the PPF graphs as you adjust the trade.

Fish (cals)
5000
4000
3000
2000
1000
0
0
0
Trade
Terms of Trade
10 20 30 40 50 60 70 80 90 100 110
Firewood (logs)
What are the rules of trading?
1 Wood (logs) for: 150 fish (cals)
How much do we trade?
Your PPF
Give wood (logs): 5
0
Receive fish (cals): 750
◆ Your PPF
200
50
Fish (cals)
8000
0
7000
6000
5000
4000
3000
2000
1000
0
0
10 20
Consumption
Collect Wood: 91 logs
0
Collect Fish: 750 cals
Friday PPF
30 40 50 60 70 80 90 100 110
Firewood (logs)
◆ Friday's PPF
Start
96
6000

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