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week2-082 - Topics Mutual Exchange Production Possibilities...

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1 Topics • Mutual Exchange • Production Possibilities Frontier/Curve • Gains from Specialization and Trade – Comparative and Absolute Advantage Mutually Beneficial Trade John Katie Snickers Reese’s PB Cup Snickers Reese’s PB Cup 20 20 20 20 Initial Endowment John Katie Snickers Reese’s PB Cup Snickers Reese’s PB Cup 30 12 10 24 John: 10 Snickers for 8 PB Katie: 10 Snickers for 4 PB Equivalent Basket in John and Katie’s Eyes
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2 Gains from Exchange BEFORE TRADE John Katie Snickers Reese’s PB Cup Snickers Reese’s PB Cup 20 20 20 20 30 12 10 24 AFTER TRADE John Katie Snickers Reese’s PB Cup Snickers Reese’s PB Cup 30 13 10 25 Production Possibilities Assumptions: 1. Two goods 2. Fixed resources and technology 3. Efficient production Production Possibilities 30 A 40 E 20 B 30 10 C D 28 25 20 Quantity of Coconuts Quantity of Fish Unattainable Points
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3 Production Possibilities 30 A 40 E 20 B 30 10 C D 28 25 20 Quantity of Coconuts Quantity of Fish
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week2-082 - Topics Mutual Exchange Production Possibilities...

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