Suppose there are two individuals Casey and Rick who live in

Suppose there are two individuals, Casey and Rick, who live in a very simplified world where only two goods are produced and consumed: spaghetti and tomato sauce. The production opportunity cost for Casey Is 7.00 kilograms of spaghetti for every kilogram of tomato sauce. Rick has a production opportunity cost of 5.00 kilograms of spaghetti for every kilogram of tomato sauce Eventually Casey realizes that through trade, both individuals can be better crff and Rick is willing to trade. What price can be settled between these two parties such that both Individuals can enjoy more of spaghetti and tomato sauce?

Solution

Any price between 7 kilogram and 5 kilogram of spaghetti per kilogram of tomato sauce will make both the individuals benefit from trade. Thus, the price of 6 kilogram of spaghetti per kilogram of tomato sauce will benefit both.