Alpha Can Produce Either 18 Tons of Oranges or 9

question 25

Multiple Choice

Alpha can produce either 18 tons of oranges or 9 tons of apples in a year, while Omega can produce either 16 tons of oranges or 4 tons of apples in a year. Which of the following terms of trade would allow both Alpha and Omega to gain from specialization and trade?

• A)1 ton of apples for 3 tons of oranges
• B)1 ton of apples for 2 tons of oranges
• C)1 ton of oranges for 0.5 tons of apples
• D)1 ton of oranges for 0.2 ton of apples
• E)1 ton of apples for 4 tons of oranges

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Definitions:

Moral Hazard

A situation in which one party is more likely to take risks because they do not bear the full consequences of their actions, often due to information asymmetry.

Deductible

The amount paid out of pocket by the policyholder before an insurance company pays a claim.

Insurance Coverage

The amount and types of risk or liability that are covered for an individual or entity by insurance services, against losses.

Flood Insurance

A specific type of insurance policy that covers property damage due to flooding, often required for buildings in flood-prone areas.