Question

1 1-13, Through trade,the farmer exchage i ounces of ptos for the rancher's ounces of meat. ounces Then, finally he can consume Before the trade, the farm ounces of potatoes and S ounces of meat. The proposed trade between the farmer and the rancher offers each of combination of meat and potatoes that would be impossible in the absence of tr in panel (a). the farmer gets to consume at point A" rather than point A. in panel b). them a Figure In conclusion, through trade the farmer becomes to more consume both potatoes and meats than those consumed before the trade. the rancher consume at How Trade Expands the Set of Consumption gets to consume at point t" rather than pone n. Trade allows each to consume more meat and more potatoes (a) The Parmer's Production and Consumption ) The Ranchers gets better off Potatoes (ounces Petatees (ounces (c) The Gains from Trade: A Summary Without rade Production and Consunmption 6 of 12 0 24 o 12 04 27 o With trade 2 Trade 5 o 13 o GAINS FROM TRADE

Answer 1

The PPF is the locus of all such point an economy can produce using all its resources efficiently. Each point on the PPF denotes efficient allocation of resources. Any point beyond PPF is welfare increasing but out of reach of the productive capacity of the economy in absence of trade and given limited resources.

In this case, after the trade, the farmer gives 5 ounces of potato, and the rancher gives 5 ounces of meat. Then the correct options are:

• 5 ounces
• 5 ounces