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unambiguous gains

8. A farmer and a rancher currently lead a subsistence existence, producing only meat and potatoes. The farmer could produce 2 units of meat per 40 hour week, or 6 potatoes, or any constant combination of the two. He currently splits his time between meat and potato production. The rancher can produce 45 units of meat, or 5 units of potatoes, or any constant combination in a 40 hour week. He currently splits his time between the two.

a. How much does the rancher and farmer currently produce and consume of meat and potatoes?
b. If they were to engage in trade with one another, who would - sell meat, and who would - sell potatoes? Explain why.
c. If the farmer were to specialize in production according to her comparative advantage, what would he produce? How do u know?
d. With this example, demonstrate the unambiguous gains the rancher and the farmer can enjoy if they specialize in production and then engage in trade.


Solution Summary

This posting illustrates unambiguous gains within the scenario.