Steve can bake either 3 loaves of bread or 12 dozen cookies a day. Sarah can bake either 6 loaves of bread or 9 dozen cookies a day (a) Show the production possibilities frontiers for Steve and Sarah (b) Suppose trade is not allowed between Steve and Sarah and as a result, both Steve and Sarah spent half a day (12 hours) baking bread and the other half a day baking cookie. Show both the production and consumption bundles for Steve and Sarah on their respective PPFS, when trade is not allowed between Steve and Sarah (c) Show, using production possibility frontiers in (a), that Steve and Sarah would be better off specializing in their baking activities and then trading, rather than baking only for themselves. Be specific and state the production and consumption bundles with trade

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Welfare Analysis

Welfare analysis of the society is related to welfare economics. From the economic point of view former welfare economics refers to that subject which uses the techniques of microeconomics to analyse and evaluate the welfare at the economic or aggregate level.