Asked by JONATHAN MORENO on Jun 28, 2024
Verified
(Table: Fish and Coconut Production Possibilities) Use Table: Fish and Coconut Production Possibilities.The table shows the maximum number of fish and coconuts that Tom and Hank can produce if they produce only one good.In the absence of trade,Tom produces and consumes 9 fish and 2 coconuts,and Hank produces and consumes 3 fish and 2 coconuts.Now they decide to engage in trade.Which statement is INCORRECT?
A) For both to become better off,each should specialize in the production of some good.However,since Hank is equally productive in both goods,it doesn't matter which good each specializes in.
B) For both to become better off,each should specialize completely in the production of the good in which he has a comparative advantage.
C) After trade,it is possible for Tom to consume 9 fish and 2.5 coconuts and for Hank to consume 3 fish and 2.5 coconuts.
D) For each individual,the consumption point after trade will lie outside that individual's production possibility frontier.
Production Possibility Frontier
A diagram that outlines every possible maximal production scenario for various items, considering a fixed amount of resources.
Trade
The exchange of goods or services between parties.
- Understand the gains from specializing and engaging in trade within a twofold system.
- Understand the effects of trade on consumption possibilities.
Verified Answer
LM
Lebogang MongaleJun 29, 2024
Final Answer :
A
Explanation :
Since Hank is equally productive in both goods, the opportunity cost of producing one unit of fish or one unit of coconut for Hank is the same. Therefore, it doesn't matter which good he specializes in, as he can trade with Tom to get the good he isn't producing. Nonetheless, specialization would still allow for increased production and consumption possibilities for both individuals.
Learning Objectives
- Understand the gains from specializing and engaging in trade within a twofold system.
- Understand the effects of trade on consumption possibilities.