Agnes Can Produce Either 1 Unit of X or 1

question 407

Multiple Choice

Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. There can be gains from exchange

• A) only if Brenda becomes faster at producing X or Y.
• B) only if Agnes becomes faster at producing X.
• C) if Agnes specializes in the production of X and Brenda specializes in the production of Y.
• D) if Agnes specializes in the production of Y and Brenda specializes in the production of X.

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Definitions:

Buy And Sell Price

The prices at which a market maker or trader is willing to purchase (buy price) and sell (sell price) a security or commodity.

Big Mac Index

A tool developed by the Economist magazine that demonstrates the over- or undervaluation of a currency as compared to the U.S. dollar using the price of the McDonald’s Big Mac.

Exchange Rate

The rate at which one currency can be exchanged for another, affecting international trade and finance.

Overvalued

Refers to an assessment where an asset's market price is considered higher than its intrinsic value.