Figure 3-3
Bob's Production Possibilities Frontier Enid's Production Possibilities Frontier
-Refer to Figure 3-3.Bob and Enid would not be able to gain from trade if Enid's opportunity cost of one taco changed to
A) 1/2 burrito.
B) 3/4 burrito.
C) 4/3 burritos.
D) 2 burritos.

Question

Figure 3-3
Bob's Production Possibilities Frontier Enid's Production Possibilities Frontier  
-Refer to Figure 3-3.Bob and Enid would not be able to gain from trade if Enid's opportunity cost of one taco changed to
A) 1/2 burrito. 
B) 3/4 burrito. 
C) 4/3 burritos. 
D) 2 burritos.

Quizplus · Accepted Answer

In order for gains from trade to occur, the two individuals must have different opportunity costs. If Enid's opportunity cost of one taco changes to 1/2 burrito, then her opportunity cost of one burrito is 2 tacos (since 1/2 burrito is the same as 2 tacos). Bob's opportunity cost of one burrito is 1.5 tacos. Therefore, Bob has a comparative advantage in producing tacos and Enid has a comparative advantage in producing burritos. Bob could produce more tacos and trade with Enid for more burritos than he would be able to produce on his own, and Enid could produce more burritos and trade with Bob for more tacos than she would be able to produce on her own. This increases their overall level of consumption and results in gains from trade.

Figure 3-3 Bob's Production Possibilities Frontier Enid's Production Possibilities Frontier