Table 3-8
Assume that Kito and Penda can switch between producing baskets and producing birdhouses at a constant rate.

-Refer to Table 3-8.At which of the following prices would both Kito and Penda gain from trade with each other?
A) 30 baskets for 15 birdhouses
B) 30 baskets for 18 birdhouses
C) 30 baskets for 24 birdhouses
D) Kito and Penda could not both gain from trade with each other at any price.

Question

Table 3-8
Assume that Kito and Penda can switch between producing baskets and producing birdhouses at a constant rate.
 
-Refer to Table 3-8.At which of the following prices would both Kito and Penda gain from trade with each other?
A) 30 baskets for 15 birdhouses 
B) 30 baskets for 18 birdhouses 
C) 30 baskets for 24 birdhouses 
D) Kito and Penda could not both gain from trade with each other at any price.

Quizplus · Accepted Answer

To determine if both Kito and Penda gain from trade, we need to compare their opportunity costs of producing baskets and birdhouses. 
Kito has an opportunity cost of producing 2 baskets for every 1 birdhouse, while Penda has an opportunity cost of producing 3 baskets for every 1 birdhouse. 
At a price of 30 baskets for 24 birdhouses, Kito's opportunity cost is 1.5 birdhouses (30 baskets/2 baskets per birdhouse) and Penda's opportunity cost is 8 birdhouses (24 birdhouses/3 baskets per birdhouse). Therefore, Kito has a lower opportunity cost of producing baskets and Penda has a lower opportunity cost of producing birdhouses, indicating that both of them can gain from trade at this price. Therefore, the answer is choice C 30 baskets for 24 birdhouses.

Table 3-8 Assume That Kito and Penda Can Switch Between Producing Baskets