Refer to the two-person economy described in Problem 5. (L04) a. Suppose that Susan and Tom could
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a. Suppose that Susan and Tom could buy or sell coffee and nuts in the world market at a price of $2 per pound for coffee and $2 per pound for nuts. If each person specialized completely in the good for which he or she had a comparative advantage, how much could they earn by selling all their produce?
b. At the prices just described, what is the maximum amount of coffee Susan and Tom could buy in the world market? What is the maximum amount of nuts? Would it be possible for them to consume 40 pounds of nuts and 8 pounds of coffee each day?
c. In light of their ability to buy and sell in world markets at the stated prices, show on the same graph all combinations of the two goods it would be possible for them to consume.
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a By specializing completely they can produce 24 pounds of coffee per day and 24 pounds of nuts the ...View the full answer
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