Answer A to g

Chapter 2 Gains from Trade In Class Exercise Below are Amy and Belle's production possibilities: Amy Belle Apple 100 units per hour 20 units per hour Banana 50 units per hour 40 units per hour a) Who has the absolute advantage in apple? In banana? Explain. b) What is the opportunity cost of producing an extra unit of apple for Amy? For Belle? Who has the comparative advantage in apple production? Explain. c) Who has the comparative advantage in banana production? Explain. d) Do they face increasing opportunity cost as they produce more and more of the product that they are good at? Why? e) On a scale diagram with apple on the horizontal axis and banana on the vertical axis, draw each person's production possibilities boundary. () Suppose 1 apple can be traded for 1 banana in the market. Draw each person's consumption possibilities with trade. g) Suppose 1 apple can be traded for 2.5 bananas in the market instead. Draw each person's consumption possibilities with trade. Does this price benefit both parties