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PPF - The Price of the Trade quiz

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  • What must the price of trade lie between for both parties to benefit?
    The price of trade must lie between the opportunity costs of the two producers.
  • Why wouldn't a trade at 2 hunch punches for 1 pizza roll be beneficial if your opportunity cost is already 2?
    Because you could already produce at that rate yourself, so the trade offers no additional benefit.
  • What is the beneficial range for trading hunch punches for pizza rolls in the example?
    The beneficial range is between 1 and 2 hunch punches per pizza roll.
  • Why is a trade price of 1 hunch punch for 1 pizza roll not fair to your friend if their opportunity cost is 1?
    Because your friend could already achieve that rate on their own, so the trade doesn't benefit them.
  • What are some example trade prices that would be beneficial for both parties in the hunch punch and pizza roll example?
    Examples include 1.2, 1.5, or 1.8 hunch punches per pizza roll.
  • If the price of trade is set outside the range of opportunity costs, what happens?
    The trade will not be beneficial to both parties, and one or both will not want to trade.
  • How do you determine the range for a beneficial trade when trading pizza rolls for hunch punch?
    The range must be between half a pizza roll and one pizza roll per bo of hunch punch.
  • Why might the trade price be set at 1.5 hunch punches per pizza roll?
    Because 1.5 is right in the middle of the beneficial range between 1 and 2.
  • What factors can influence where the trade price is set within the acceptable range?
    Supply and demand, negotiating power, and the goal of equity can all influence the final trade price.
  • How does supply and demand affect the price of trade?
    If one good is more abundant, its value may decrease, affecting the agreed trade price.
  • What role does negotiating power play in setting the trade price?
    A better negotiator may secure a trade price more favorable to themselves within the beneficial range.
  • What is meant by an equitable trade?
    An equitable trade is one where both parties are better off and the terms are considered fair.
  • Why is it important for the trade price to be better than each party's individual production capability?
    Because otherwise, there is no incentive for either party to trade.
  • What happens if the trade price equals one party's opportunity cost?
    That party gains nothing from the trade and would have no reason to participate.
  • What is the only way for trade to be beneficial according to the lesson?
    The trade price must lie between the opportunity costs of the two producers.