Question

Next, fill in consumption with trade. Recall that you trade your neighbor half of what you pick for half of what your neighbor picks. 80- 72- Your Neighbor Cherries You Apples Cherries Apples 64- Consumption without trade 56- 24 28 4 Production 48- 72 32 with Trade 40- Consumption with Trade 36 16 36 16 32- Finally, fill in gains from trade. 24- PPFNeighbor Your Neighbor Cherries You 16- PPFYOU You Apples Cherries Apples 8- Consumption without trade 24 28 4 0- 56 64 16 40 48 32 Apples (pounds) 72 80 24 Production 72 32 with Trade Consumption 36 16 36 16 with Trade Gains from Trade Cherries (pounds)

Answer 1

You export (72/2) = 36 apples and your neighbor imports those 36 apples. Your neighbor export (32/2) = 16 cherries to you in exchange for those apples.

Therefore, your Consumption with trade is (72 - 36) = 36 apples and (0+16) = 16 cherries. Your neighbor's Consumption with trade is (0+36) = 36 apples and (32 - 16) = 16 cherries.

Gains from trade = (Consumption with trade - Consumption without trade)

Therefore, your gains from trade = (36 - 24) = 12 apples and (16 -8) = 8 cherries.

Your neighbor's gains from trade = (36 - 28) = 8 apples and (16 -4) = 12 cherries