7. Some students are not familiar with the term "guns and butter" or "guns versus butter." Search for the internet for these terms. What issues are being addressed with this term today?
8a. Crusoe is the sole resident of Biosphere 28. He will spend two years alone in it. In each year he can grow 100 bushels of grain. Grain stores quite well, but 5% of it rot from the first year to the second. Draw his budget constraint. (Hint: the axes are consumption in year one and consumption in year two.)
8b. Now suppose that Crusoe is living in a primitive barter economy. The only way to store his grain is in the local warehouse, which charges him 5% of what he has to store. However nothing spoils. He can also borrow against next years crop, but at a 10% interest rate (payable in grain.) Draw his new budget line on a separate graph. (Hint: Make the axes consumption in year one and consumption in year two.)
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