Write down an expression for the terms of trade. Explain how the terms of trade relates to the…
Write down an expression for the terms of trade. Explain how the terms of trade relates to the… | savvyessaywriters.org
Consider two farmers, one with an endowment of five pounds of peaches, the other with an endowment of five pounds of cherries. Suppose these two farmers meet daily and make a mutually agreeable exchange of two pounds of peaches for three pounds of cherries. a. Write down an expression for the terms of trade. Explain how the terms of trade relates to the dollar prices of the two goods. Consider the following shocks (or changes). Explain how each of these shocks may influence the terms of trade between the farmers. Assume that each farmer”s sole interest is to maximize her own utility. b. The cherry farmer arrives at the market with five extra pounds of cherries. c. The peach farmer has just finished reading a book titled How to Influence People. d. Damp weather causes mold to grow on 40 percent of the peaches. e. News reports indicate that cherry consumption can reduce the risk of cancer.
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