Consider a simple exchange economy with two people: Bob and Jake. Bob and Jake both have ten hours of time available. The can use their time to do one of two things: make pancakes or make hamburgers. Bob can make two hamburgers in an hour or one pancake in an hour. Jake can make three pancakes in an hour or two hamburgers in an hour. Use this information to answer the following questions: a.) Draw Jake and Bob’s PPFs, with hamburgers on the x-axis. b.) Give equations for Jake and Bob’s PPFs in y = mx+b form, still treating hamburgers as the x variable. c.) Who has absolute advantage in the production of hamburgers? Who has absolute advantage in the production of pancakes? d.) Who has comparative advantage in the production of hamburgers? Who has comparative advantage in the production of pancakes? e.) Can Bob and Jake both benefit from trade if the terms of trade are one pancake per hambruger? Why
Consider a simple exchange economy with two people: Bob and Jake. Bob and Jake both have ten hours
of time available. The can use their time to do one of two things: make pancakes or make hamburgers.
Bob can make two hamburgers in an hour or one pancake in an hour. Jake can make three pancakes in an
hour or two hamburgers in an hour. Use this information to answer the following questions:
a.) Draw Jake and Bob’s PPFs, with hamburgers on the x-axis.
b.) Give equations for Jake and Bob’s PPFs in y = mx+b form, still treating hamburgers as the x
variable.
c.) Who has
the production of pancakes?
d.) Who has
advantage in the production of pancakes?
e.) Can Bob and Jake both benefit from trade if the terms of trade are one pancake per hambruger?
Why
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