In problems 1 and 2, Jane’s Island produces and consumes 2 pounds of corn and 2 yards of cloth. Joe’s Island produces and consumes 2 pounds of corn and 2 yard of cloth. Now the islands begin to trade.

a. What good does Jane sell to Joe and what good does Jane buy from Joe?

b. If Jane and Joe divide the total output of corn and cloth equally, what are the gains from trade?

Data from Problem 2

In problem 1, Jane is willing to give up 0.75 pounds of corn per yard of cloth if she has 2 yards of cloth; 0.50 pounds of corn per yard of cloth if she has 4 yards of cloth; and 0.25 pound of corn per yard of cloth if she has 6 yards of cloth.

Draw a graph of Jane’s marginal benefit from corn.

What is Jane’s efficient quantity of corn?

Data from Problem 1

Jane’s Island’s production possibilities are given in the table to the right.

Draw a graph of the production possibility possibilities frontier on Jane’s Island.

What are Jane’s opportunity costs of producing corn and cloth at each output in the table?

Transcribed Image Text:

Corn (pounds Cloth per month) (yards per month) 3.0 and 2-0 and 2 1-0 and 4 and 6