Consider a simple economy with a single good: bread. There are 5 loaves of bread and two potential consumers of bread: Moose and Squirrel. Moose likes consuming as much bread as possible, and Squirrel likes consuming as little bread as possible. Which of the following allocations is Pareto efficient? O loaves of bread for Moose, 5 loaves of bread for Squirrel 2 loaves of bread for Moose, 2 loaves of bread for Squirrel O loaves of bread for Moose, 0 loaves of bread for Squrirrel 5 loaves of bread for Moose, 0 loaves of bread for Squirrel

When an allocation is changed and someone becomes better-off, then we can call this a Pareto-Improvement, so long as ____.   A. All other parties become better-off   B. All other parties become worse-off   C. Someone else is made worse-off   D. No one is worse-off

When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers (PPFS) for Freedonia and Desonia. Both countries produce grain and tea, each initially (i.e., before specialization and trade) producing 6 million pounds of grain and 3 million pounds of tea, as indicated by the grey stars marked with the letter A. TEA (Millions of pounds) tea. 16 14 12 10 8 6 2 0 0 PPF 2 Freedonia Þ 4 6 8 10 12 GRAIN (Millions of pounds) 14 16 ? TEA (Millions of pounds) 16 14 Note: Dashed drop lines will automatically extend to both axes. 12 10 6 2 0 0 PPF I 2 Desonia 4 6 8 10 12 GRAIN (Millions of pounds) 7 Freedonia has a comparative advantage in the production of while Desonia has a comparative advantage in the production of ▼. Suppose that…

2. Suppose that Anna is indifferent between 2 cellphones and 4 computers and George is indifferent between 1 computer and 2 cellphones. Anna: 2 cellphones George: 2 cellphones = 11 4 computers 1 computers 1. Find two examples of a trade between Anna and George that makes both better off? 2. Should Anna give computers or cellphones to George? • If George gives Anna 6 cellphones and receives 2 computers. If this a fair trade? Explain your answer.