Consider a simple exchange economy with two people: Bob and Jake. Bob and Jake both have 10 hours of time available. They can use thier their time to do one of 2 things: make pancakes or make hamburgers. Bob can make 2 hamburgers in an hour or 1 pancake in an hour. Jake can make 3 pancakes in an hour and 2 hamburgers in an hour. Use this information to answer the following questions:  a) Who has absolute advantage in the production of hamburgers? Who has absolute advantage in the production of pancakes? b) Who has comparative advantage in the production of hamburgers? Who has comparative advantage in the production of pancakes? c) Can Bob and Jake both benefit from trade if the terms of trade are one pancake per hamburger? Why or why not?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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Consider a simple exchange economy with two people: Bob and Jake. Bob and Jake both have 10 hours of time available. They can use thier their time to do one of 2 things: make pancakes or make hamburgers. Bob can make 2 hamburgers in an hour or 1 pancake in an hour. Jake can make 3 pancakes in an hour and 2 hamburgers in an hour. Use this information to answer the following questions: 

a) Who has absolute advantage in the production of hamburgers? Who has absolute advantage in the production of pancakes?

b) Who has comparative advantage in the production of hamburgers? Who has comparative advantage in the production of pancakes?

c) Can Bob and Jake both benefit from trade if the terms of trade are one pancake per hamburger? Why or why not?

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