Suppose That Sheldon and Leonard Can Either Run Errands or Wash

question 12

Multiple Choice

Suppose that Sheldon and Leonard can either run errands or wash dishes. Their maximum output per hour is listed in the following table. Given the same quantity of resources, at what terms of trade (relative price ratio) could they specialize and trade so that both consume outside their own production possibilities frontier (PPF) ? $$\begin{array} { | l | l | l | l | l | } \hline & \begin{array} { l } \text { Errands } \\\text { Run }\end{array} & \begin{array} { l } \text { Opporturity } \\\text { Cost of 1 } \\\text { Errand }\end{array} & \begin{array} { l } \text { Dishes } \\\text { Washed }\end{array} & \begin{array} { l } \text { Opportumity } \\\text { Cost of 1 Dish } \\\text { Washed }\end{array} \\\hline \text { Sheldon } & 1 & 60 \text { dishes } & 60 & 1 / 60 \text { errand } \\\hline \text { Leonard } & 3 & 15 \text { dishes } & 45 & 1 / 15 \text { errand } \\\hline\end{array}$$

• A) 1 errand run per 75 dishes washed
• B) 1 errand run per 30 dishes washed
• C) 1 errand run per 12 dishes washed
• D) 1 errand run per 10 dishes washed
• E) 1 errand run per 6 dishes washed

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Definitions:

Futures Contract

A standardized legal agreement to buy or sell a particular commodity or financial asset at a predetermined price at a specific time in the future.

Clearinghouse

Established by exchanges to facilitate transfer of securities resulting from trades. For options and futures contracts, the clearinghouse may interpose itself as a middleman between two traders.

Taxation

The process whereby authorities impose financial charges on individuals or legal entities, which can have implications for investment decisions.

Futures Trading

Involves buying and selling futures contracts which are agreements to buy or sell an asset at a future date for a price that is decided now.