Anderson specializes in corn and Brooks in wheat:
Total: 60 30
Terms of trade:
- 10C = 30W
- 10C = 40W
- thus equilibrium terms of trade: 10C = 40W
*Specialization allows individuals to take advantages of their differences, allocates resources for maximum output, and fosters excellence in skills and technology*
Indifference analysis:
Decision-making agents (could be family, firm, government bureau) have choices, well-defined preference functions, and an opportunity set (range of options available i.e. income). Operative behavior is optimization.