Micro2Solutions

# Use the following information to answer question 4

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: e following information to answer question 4: Good A Good A 200 200 150 150 100 100 Tony 50 50 50 100 150 200 Good B Martha 50 100 150 200 Good B Q4. Tony and Martha would be better off by trading at a relative price of good A ranging a) b) c) d) e) Between 1/3 and 2 units of good B per unit of good A Between 2 and 3 units of good B per unit of good A Between 1/2 and 3 units of good B per unit of good A Between 1 and 2 units of good B per unit of good A Between 1 and 3 units of good B per unit of good A Solution: a) Between 1/3 and 2 units of good B per unit of good A Tony: the opportunity cost of producing 1 unit of good A =200/100 = 2 units of good B; Martha: the opportunity cost of producing 1 unit of good A =50/150 = 1/3 units of good B Tony and Martha are better off if relative price of good A is in between Tony and Martha’s respective opportunity costs of producing good A. They both can get goods at a lower cost than that at which they can produce the goods themselves. Page 3 of 33 ©Prep10...
View Full Document

## This note was uploaded on 08/26/2010 for the course ECON 208 taught by Professor Dickenson during the Fall '07 term at McGill.

Ask a homework question - tutors are online