Trade Off Ratio in Simple Economy: John vs George

What do we expect when John and George specialize and exchange with each other?

In a simple economy, if John and George decide to specialize and exchange with each other, what can we expect in terms of the trade between vegetables and chicken?

Answer:

Ten pounds of chicken would trade for at least 40 pounds of vegetables but not more than 50 pounds of vegetables.

The trade-off ratio between John and George shows that John can produce 4 pounds of vegetables for every 1 pound of chicken, while George can produce 5 pounds of vegetables for every 1 pound of chicken. This means that John has a comparative advantage in chicken production, while George has a comparative advantage in vegetable production.

When they specialize and exchange with each other, John will sell chicken to George and George will sell vegetables to John. This exchange allows both parties to benefit from their respective comparative advantages.

Through the gains from trade, both John and George will receive a trade ratio that is more favorable than their own trade-off ratios. John will receive more than 4 pounds of vegetables for every pound of chicken he sells, while George will receive more than 0.20 pounds of chicken for every pound of vegetables he sells.

By applying the unitary method, we can calculate that with 10 pounds of chicken, John can trade for 40 pounds of vegetables based on the ratio 1 chicken : 4 vegetables. Similarly, with the same 10 pounds of chicken, George can trade for up to 50 pounds of vegetables based on the ratio 0.20 chicken : 1 vegetable.