Bob can make 10 burgers or 5 pizzas in an hour while Jane can make 20 burgers
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Question:
Bob can make 10 burgers or 5 pizzas in an hour while Jane can make 20 burgers or 10 pizzas.
i. Calculate each person’s opportunity costs and determine which person has a comparative advantage in the production of each item. Discuss whether there are any gains from trade.
ii. Now assume that Bob gets a new pizza oven, and he can make 10 pizzas in an hour. Does this alter your analysis from part (i) above? Clearly explain if there is a rate, if any, at which both Bob and Jane would be willing to specialize and engage in trade.
Related Book For
Macroeconomics Principles, Applications, and Tools
ISBN: 978-0132555234
7th Edition
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez
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