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Ive been looking all over the place for an answer to this question. I'm sure its simple and its driving me nuts.

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The answer is b. but i dont know why.

$W10 = C10 \implies 1W = 1C$

$7W = 2C \implies 2/7C$

What am i missing?

Akira
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user583753
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1 Answers1

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First off, I think you’re mistaking an $8$ for a $7$ on the y axis of Cliff’s PPF.

The idea is that Paul can trade wheat for corn with himself at 1:1, so he needs a better deal than that to trade with Cliff. On the other hand, Cliff can trade 1 corn for 4 wheat with himself. The only of the four options where both are getting a better deal is when Cliff gets 1 corn from Paul in exchange for 2 wheat.

(Also note (a) and (d) are the same exchange rate.)

spaceisdarkgreen
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  • Yes that was a mistake. Should have been 8. Is there not a mathematical way that the answer was derived? – user583753 Sep 29 '18 at 02:27
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    @user583753 There is no unique right answer without more information, if that’s what you’re asking. Trade could happen anywhere between 1:1 and 1:4 since that’s the range in which it is beneficial to both. Only one of the choices is in this range though. (Or do you not see how I computed each’s “exchange rate with their self”.) – spaceisdarkgreen Sep 29 '18 at 02:33