Here is what is written in my textbook: Economy A and economy B have arched PPF\
ID: 1247875 • Letter: H
Question
Here is what is written in my textbook:Economy A and economy B have arched PPF's. In these economies, the people only consume cookies and wine, they consume a fixed amount of cookies per bottle of wine. At the start of the year 2001, economy A gave economy B 500 wine bottles as a present. This gift will cause economy A to take some of the resources that were producing wine and move them to producing cookies. As a result, the average opportunity cost in economy B for producing wine will be lower in the year 2001 than it was in the year 2000. I don't understand why this is so. Please help. Thank you.
Explanation / Answer
Because economy B now has more wine, the input(cookies) needed to produce another unit of wine is reduced.