Table 3-4
Assume that the farmer and the rancher can switch between producing meat and producing potatoes at a constant rate.

-Refer to Table 3-4.Assume that the farmer and the rancher each has 40 labor hours available.If each person spends all his time producing the good in which he has a comparative advantage and trade takes place at a price of 2 pounds of meat for 6 pounds of potatoes,then
A) the farmer and the rancher will both gain from this trade.
B) the farmer will gain from this trade,but the rancher will not.
C) the rancher will gain from this trade,but the farmer will not.
D) neither the farmer nor the rancher will gain from this trade.

Question

Table 3-4
Assume that the farmer and the rancher can switch between producing meat and producing potatoes at a constant rate.
 
-Refer to Table 3-4.Assume that the farmer and the rancher each has 40 labor hours available.If each person spends all his time producing the good in which he has a comparative advantage and trade takes place at a price of 2 pounds of meat for 6 pounds of potatoes,then
A) the farmer and the rancher will both gain from this trade. 
B) the farmer will gain from this trade,but the rancher will not. 
C) the rancher will gain from this trade,but the farmer will not. 
D) neither the farmer nor the rancher will gain from this trade.

Quizplus · Accepted Answer

According to the table, the farmer can produce 10 pounds of potatoes or 2 pounds of meat in 40 hours, while the rancher can produce 12 pounds of meat or 6 pounds of potatoes in 40 hours. Therefore, the farmer has a comparative advantage in producing potatoes, while the rancher has a comparative advantage in producing meat. 
If they both specialize in their comparative advantage and trade takes place at a rate of 2 pounds of meat for 6 pounds of potatoes, then the farmer would produce 10 pounds of potatoes and the rancher would produce 24 pounds of meat, and they would trade 20 pounds of potatoes for 6 pounds of meat (10:3 ratio). 
Now the farmer has 20 pounds of meat and 0 pounds of potatoes, while the rancher has 4 pounds of potatoes and 18 pounds of meat. Both of them have gained from this trade as they both end up with more of both goods than they could produce by themselves in 40 hours.

Table 3-4 Assume That the Farmer and the Rancher Can Switch Between