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Use the following information to answer question 4

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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...
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