Question 2 Mark has an income of $500 per month, and he spends it on two goods, apples and bananas. Both Country M where Mark lives and Country Y can produce apples and bananas. Country M can produce 80 tons of apples or 120 tons of bananas, while Country Y can produce 100 tons of apples or 200 tons of bananas. a. Without trade, Country M produces 30 tons of apples, and Country Y produces 40 tons of apples. The price of a kilo of apple is $10, and the price of a kilo of banana is $5 in country M. If Mark allocates his entire income on apples, how many kilos of apples he can afford? And if Mark allocates his entire income on bananas, how many kilos of bananas he can afford? b. Calculate the opportunity cost of producing one ton of apples in each country. Which country has comparative advantage in the production of apples? Which country has comparative advantage in the production of bananas? C. Now suppose the Country M is considering trading 20 tons of apples with Country Y for 10 tons of bananas. Calculate the new levels of apples and bananas in country M. Suppose the price of apples and bananas in Country M is determined by P(A) = 300/A and P(B) = 375/B, where A and B are the unit tons of apples and bananas. Again, if Mark allocates his entire income on apples, how many kilos of apples he can afford? And if Mark allocates his entire income on bananas, how many kilos of bananas he can afford? d. Do you think trade can benefit everyone? Does Mark benefit from the trade described above? If yes, explain why. If no, please give suggestions on how Mark can benefit from the trade or not at all.
Question 2 Mark has an income of $500 per month, and he spends it on two goods, apples and bananas. Both Country M where Mark lives and Country Y can produce apples and bananas. Country M can produce 80 tons of apples or 120 tons of bananas, while Country Y can produce 100 tons of apples or 200 tons of bananas. a. Without trade, Country M produces 30 tons of apples, and Country Y produces 40 tons of apples. The price of a kilo of apple is $10, and the price of a kilo of banana is $5 in country M. If Mark allocates his entire income on apples, how many kilos of apples he can afford? And if Mark allocates his entire income on bananas, how many kilos of bananas he can afford? b. Calculate the opportunity cost of producing one ton of apples in each country. Which country has comparative advantage in the production of apples? Which country has comparative advantage in the production of bananas? C. Now suppose the Country M is considering trading 20 tons of apples with Country Y for 10 tons of bananas. Calculate the new levels of apples and bananas in country M. Suppose the price of apples and bananas in Country M is determined by P(A) = 300/A and P(B) = 375/B, where A and B are the unit tons of apples and bananas. Again, if Mark allocates his entire income on apples, how many kilos of apples he can afford? And if Mark allocates his entire income on bananas, how many kilos of bananas he can afford? d. Do you think trade can benefit everyone? Does Mark benefit from the trade described above? If yes, explain why. If no, please give suggestions on how Mark can benefit from the trade or not at all.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Question 2
Mark has an income of $500 per month, and he spends it on two goods, apples and
bananas. Both Country M where Mark lives and Country Y can produce apples and
bananas. Country M can produce 80 tons of apples or 120 tons of bananas, while
Country Y can produce 100 tons of apples or 200 tons of bananas.
a.
Without trade, Country M produces 30 tons of apples, and Country
Y produces 40 tons of apples. The price of a kilo of apple is $10, and the price
of a kilo of banana is $5 in country M. If Mark allocates his entire income on
apples, how many kilos of apples he can afford? And if Mark allocates his
entire income on bananas, how many kilos of bananas he can afford?
Calculate the opportunity cost of producing one ton of apples in
each country. Which country has comparative advantage in the production of
apples? Which country has comparative advantage in the production of
bananas?
b.
C.
Now suppose the Country M is considering trading 20 tons of
apples with Country Y for 10 tons of bananas. Calculate the new levels of
apples and bananas in country M. Suppose the price of apples and bananas in
Country M is determined by P(A) = 300/A and P(B) = 375/B, where A
and B are the unit tons of apples and bananas. Again, if Mark allocates his
entire income on apples, how many kilos of apples he can afford? And if Mark
allocates his entire income on bananas, how many kilos of bananas he can
afford?
d.
Do you think trade can benefit everyone? Does Mark benefit from
the trade described above? If yes, explain why. If no, please give suggestions
on how Mark can benefit from the trade or not at all.
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