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 gains from trade.

Question

Quizplus · Accepted Answer

Before trade, Liz produces at point A on her PPF and Joe produces at point A on his PPF. After trade, Liz specializes in producing smoothies and trades 10 smoothies to Joe for 25 salads (2.5 salads per smoothie). With the 25 salads, Liz can produce at point B, which is outside of her original PPF. She now has 10 additional smoothies and 5 additional salads compared to her initial production, so she gains 10 smoothies and 5 salads. Joe, on the other hand, gains 10 smoothies from the trade. Thus, the correct choice is (A).

Using the Figure Above,suppose with No Trade Liz and Joe