Suppose That There Are Two Goods in the World: Bread

question 132

Essay

Suppose that there are two goods in the world: bread and cheese. Without trade, David can bake 50 loaves of bread in a week. Alternatively, he can make five kg of cheese in a week. Laura can make 20 kg of cheese in one week, or she can bake 10 loaves of bread in one week. Draw the production possibilities frontiers for David and for Laura, assuming that the frontiers are linear.

---

Definitions:

Expected Rate of Return

Refers to the profit or loss an investor anticipates on an investment that has various known or expected rates of return.

Interest Rate

The cost of borrowing money or the reward for saving, typically expressed as a percentage of the principal amount per year.

New Machinery

Refers to recently developed or acquired equipment that is used in manufacturing or production processes.

Effective Usury Laws

Legislation that regulates and limits the amount of interest that can be charged on loans, preventing excessively high rates.