Question

production possibilities schedules
geppetto
lewis
puzzles
puppets
puzzles
puppets
100
0
50
0
80
4
40
5
60
8
30
10
40
12
20
15
20
16
10
20
0
20
0
25
instructions: enter your answers as a whole number.

a. geppetto and lewis agree to trade at a rate of one puzzle for one puppet. with those terms of trade, who is most likely to be the supplier of puzzles? who is most likely to be the supplier of puppets?
puzzles: (click to select)
puppets: (click to select)

b. the two toy store owners agree to specialize and to trade 15 puzzles for 15 puppets. the terms of trade are still one puzzle for each puppet. how many puzzles and puppets will each one have after they complete their trade?
lewis: puzzles and puppets
geppetto: puzzles and puppets

Explanation:

Step1: Calculate Geppetto's opportunity cost

To make 1 puppet, Geppetto gives up $\frac{100}{20}=5$ puzzles. To make 1 puzzle, he gives up $\frac{20}{100}=0.2$ puppets.

Step2: Calculate Lewis's opportunity cost

To make 1 puppet, Lewis gives up $\frac{50}{25}=2$ puzzles. To make 1 puzzle, he gives up $\frac{25}{50}=0.5$ puppets.

Step3: Identify comparative advantage

Geppetto has lower opportunity cost for puzzles ($0.2 < 0.5$), so he supplies puzzles. Lewis has lower opportunity cost for puppets ($2 < 5$), so he supplies puppets.

Step4: Specialize for trade

Geppetto specializes in puzzles: produces 100 puzzles, 0 puppets. Lewis specializes in puppets: produces 0 puzzles, 25 puppets.

Step5: Compute post-trade quantities for Lewis

Lewis gives 15 puppets, gets 15 puzzles. Puzzles: $0 + 15 = 15$. Puppets: $25 - 15 = 10$.

Step6: Compute post-trade quantities for Geppetto

Geppetto gives 15 puzzles, gets 15 puppets. Puzzles: $100 - 15 = 85$. Puppets: $0 + 15 = 15$.

Answer:

a. Puzzles: Geppetto
Puppets: Lewis
b. Lewis: 15 puzzles and 10 puppets
Geppetto: 85 puzzles and 15 puppets