The figure above show Liz's and Joe's production possibilities for Salads and Smoothies.
-Using the figure above,suppose with no trade Liz and Joe each produce at point A on their respective PPFs.Then,Liz suggests that they specialize and trade.She would produces only smoothies and Joe would produce only salads.Then she would sell 10 smoothies to Joe at a price of 2.5 salads per smoothie.In this scenario,
A) Liz gains 10 smoothies and 5 salads, and Joe gains 5 smoothies.
B) Liz gains 5 smoothies, and Joe gains 10 smoothies.
C) Liz gains 10 smoothies, and Joe loses 5 smoothies.
D) Liz gains 5 smoothies and 5 salads, and Joe loses 5 salads.
E) None of the individuals gain from trade.

Question

The figure above show Liz's and Joe's production possibilities for Salads and Smoothies.
-Using the figure above,suppose with no trade Liz and Joe each produce at point A on their respective PPFs.Then,Liz suggests that they specialize and trade.She would produces only smoothies and Joe would produce only salads.Then she would sell 10 smoothies to Joe at a price of 2.5 salads per smoothie.In this scenario,
A) Liz gains 10 smoothies and 5 salads, and Joe gains 5 smoothies. 
B) Liz gains 5 smoothies, and Joe gains 10 smoothies. 
C) Liz gains 10 smoothies, and Joe loses 5 smoothies. 
D) Liz gains 5 smoothies and 5 salads, and Joe loses 5 salads. 
E) None of the individuals gain from trade.

Quizplus · Accepted Answer

Liz gains 10 smoothies and 5 salads, and Joe gains 5 smoothies. Liz specializes in smoothies and trades 10 for 25 salads (10 x 2.5), gaining 5 salads. Joe gains 5 smoothies by trading 25 salads.

The Figure Above Show Liz's and Joe's Production Possibilities for Salads