Suppose there are two bakers in town: Sarah and Amy. Sarah can bake 4 loaves of bread or 8 pies in one day. Amy can bake 6 loaves of bread or 2 pies in one day. Please do the following: (a) Calculate the opportunity cost for both Sarah and Amy for baking pies and bread (b) Draw both Sarah and Amy's PPF curve (c) Who has an absolute advantage in baking bread? In baking pies? (d) Who has a comparative advantage in baking bread? In baking pies? (e) Determine a specific trade (i.e. give me numbers) that would make both Sarah and Amy better off.
Suppose there are two bakers in town: Sarah and Amy. Sarah can bake 4 loaves of bread or 8 pies in one day. Amy can bake 6 loaves of bread or 2 pies in one day. Please do the following: (a) Calculate the opportunity cost for both Sarah and Amy for baking pies and bread (b) Draw both Sarah and Amy's PPF curve (c) Who has an absolute advantage in baking bread? In baking pies? (d) Who has a comparative advantage in baking bread? In baking pies? (e) Determine a specific trade (i.e. give me numbers) that would make both Sarah and Amy better off.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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