Homework Answers
(Question 1: End of Chapter 1.4a)
A drought will decrease the resources required to produce coffee and soybean, so output of both the goods will decrease. PPF will shift inward equally along both axes, so PPF1 will shift inward to PPF2.
(Question 2: Gains from Trade)
My consumption point before trade is shown by point A (since, before trade, I cannot consume outside the PPF and have to consume inside or on the PPF).
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