Consider a small closed economy with two consumption goods: good 1 (meat) and good 2 (berries). There are two types of agents, h and g, andthey have the same preferences over consumption, represented by the utility function: u(x1, x2) = In ¤1 + In x2. However, there are twice asmany type-h agents as type-g agents.The only factors of production are their labour. When a type-h agent chooses to spend a fraction a of his day producing meat and the restproducing berries then his output is (yf, y½) = (2a, 2(1 – a)). A type-g agent is more productive. When she chooses to spend a fraction B ofher day producing meat and the rest producing berries then her output is (y7, vž) = (38, 12(1 – B)).The hunter-gatherers now have the possibility of opening up their economy to free trade. In world markets,1 unit of meat can be exchanged for 2 units of berries, and the country would be a price-taker. Which of the following statements is correct?O a. Only agents of type g benefit from free trade.O b. Only agents of type h benefit from free trade.O c. Both agents of type h and g are strictly better off under free trade.

actors of production are their labour. When a type-h agent chooses to spend a fraction a of his da berries then his output is (yf, v½) = (2a, 2(1 – a)). A type-g agent is more productive. When oducing meat and the rest producing berries then her output is (y7, v5) = (38, 12(1 – 3)). The hunter-gatherers now have the possibility of opening up their econ meat can be exchanged for 2 units of berries, and the country would be a price-taker. Which of the f Only agents of type g benefit from free trade. Only agents of type h benefit from free trade. Both agents of type h and g are strictly better off under free trade.

actors of production are their labour. When a type-h agent chooses to spend a fraction a of his da berries then his output is (yf, v½) = (2a, 2(1 – a)). A type-g agent is more productive. When oducing meat and the rest producing berries then her output is (y7, v5) = (38, 12(1 – 3)). The hunter-gatherers now have the possibility of opening up their econ meat can be exchanged for 2 units of berries, and the country would be a price-taker. Which of the f Only agents of type g benefit from free trade. Only agents of type h benefit from free trade. Both agents of type h and g are strictly better off under free trade.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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