Question

3. You and your neighbor are the only people in a world that produces only berries and squash. You do not engage in trade with each other. On your own, you can each produce the following per day: You Neighbor Berries Squash Berries Squash Only gather berries 24 pounds O pounds 8 pounds 0 pounds Only gather squash pounds 12 pounds 0 pounds 8 pounds Right now you each split your time between gathering the two products. You currently gather and consume 16 pounds of berries and 4 pounds of squash, while your neighbor is gathering and consuming 6 pounds of berries and 2 pounds of squash. Show (both graphically and numerically) how specialization and then trade with each other can make both of you better off. Who specializes in the production of each product? After specialization, what is an example of a trade that would be beneficial for both of you to make?

plz write in text not in a pic thank you

Answer 1

Opportunity Cost of berries to me = 12/24 = 0.5pound squash

Opportunity cost of producing squash to neighbor = 24/12 = 2 pound berries

Opportunity Cost of berries to neighbor = 8/8 = 1 pound squash

Opportunity cost of producing squash to neighbor = 8/8 = 1 pound berries

Since the opportunity cost of berries is lower for me and the opportunity cost of squash is lower for the neighbor. Therefore, I will specialize in berries and will only produce and the neighbor will specialize in squash and will only produce squash.

Total berries that will be produced = 24pound and total squash tht will be produced will be equal 8pounds.

Therefore the neighbor and I will trade 2 pound berries for one pound of squash

Thus the neighbor will consume 8pound berries and 4 pound squash.

I will consume 16 pounds of berries and 4 pounds of squash.