John and Sotiris live on trees in two different forests. They each have eight hours to work in a day. John can grow a Yam in 1 hour or raise a Zebra in 2 hours. Sotiris can grow a Yam in 2 hours or raise a Zebra in 4 hours. Both John and Sotiris consume equal numbers of Yams and Zebras. (a) Clearly draw and label PPFs for John and Sotiris and their consumption bundle in autarky, with Zebras on the vertical axis, showing how you calculated this. Define and find the opportunity cost of a yam on each island and discuss how it can be represented on each PPF. Does John or Sotiris have an absolute or comparative advantage in producing either Yams or Zebras? (b) Now suppose John and Sotiris can freely trade at a price of one Yam per Zebra. How much of each good will John and Sotiris produce and consume? How much better or worse off in percentage terms are John and Sotiris? How is this possible?
John and Sotiris live on trees in two different forests. They each have eight hours to work in a day. John can grow a Yam in 1 hour or raise a Zebra in 2 hours. Sotiris can grow a Yam in 2 hours or raise a Zebra in 4 hours. Both John and Sotiris consume equal numbers of Yams and Zebras.
(a) Clearly draw and label PPFs for John and Sotiris and their consumption bundle in autarky, with Zebras on the vertical axis, showing how you calculated this. Define and find the
(b) Now suppose John and Sotiris can freely trade at a price of one Yam per Zebra. How much of each good will John and Sotiris produce and consume? How much better or worse off in percentage terms are John and Sotiris? How is this possible?
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