Consider two individuals, Fred and Barney. In one hour, Fred can produceeither 15 gallons of beer, or 3 gallons of wine. In one hour, Barney can produce2 gallons of beer or 4 gallons of wine. Assume both goods can be produced incontinuous quantities. Assume that each person wants to consume 3 gallons of wine, then as muchbeer as they can. Determine what each person will end up consumingi) when they cannot trade.ii) when they can trade at a price of 1gallon wine = 2 gallons beer.Use this to explain why trade benefits both consumers.

Consider two individuals, Fred and Barney. In one hour, Fred can produceeither 15 gallons of beer, or 3 gallons of wine. In one hour, Barney can produce2 gallons of beer or 4 gallons of wine. Assume both goods can be produced incontinuous quantities. Assume that each person wants to consume 3 gallons of wine, then as muchbeer as they can. Determine what each person will end up consumingi) when they cannot trade.ii) when they can trade at a price of 1gallon wine = 2 gallons beer.Use this to explain why trade benefits both consumers.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter6: Consumer Choices

Section: Chapter Questions

Problem 5RQ: Who determines how much utility an individual will receive from consuming a good?

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