Answer:
- A. See the figure attached
- B. 1/2
- C. 1/3
- D. Both budget lines have the same number of combinations of coconuts and fish.
Explanation:
<u>A. See the figure attached</u>
To draw the buget line for trading with Friday you can enter some points.
Note that for every coconut you give, Friday will give you 2 fish. Hence:
- number of fish = 2 × number of coconuts
- number of coconuts = number of fish / 2
Fish (horizontal axis) Coconuts (vertical axis)
0 0
2 1
4 2
6 3
40 20
The range is from 0 coconuts to 20 coconuts, which limits the number of fish to the even umbers bwetween 0 and 40.
<u>B. See the figure attached</u>
For every coconut you give, Kwame will give you 3 fish. Hence:
- number of fish = 3 × number of coconuts
- number of coconuts = number of fish / 3
Fish (horizontal axis) Coconuts (vertical axis)
0 0
3 1
6 2
9 3
60 20
The range is also from 0 coconuts to 20 coconuts, but now the number of fish is limited to mulitples of 3 between 0 and 60.
<u>B. What is slope of the budget line from trading with Friday?</u>
The slope is the trading rate:
- slope = rise / run = Δy / Δx = 1 coconut / 2 fish
It means that you will give 1 coconut per each 2 fish you receive from Friday.
<u>C. What is slope of the budget line from trading with Kwame? </u>
Again, the slope is the trading rate:
- slope = rise / run = Δy / Δx = 1 coconut / 3 fish
It means that you will give 1 coconut per 3 fish that you receive from Kwame.
<em><u>D. Witch budget line features a larger set of attainable combinations of coconuts and fish?</u></em>
Both buget lines have the same number of combinations of coconuts and fish.
For Friday:
- (0,0), (2,1), (4,2), (6, 3), ..... (40, 20), which are 21 combinations if you include (0,0).
For Kwame:
- (0,0), (3,1), (6, 2), (9, 3), . . . (60, 20), which also are 21 combinations.
