HOMEWORK Unit TWO - Optional

Chapter 1 'Ten Principles of Economics'

Q5 Why isn't trade among countries like a game with some winners and some losers?

Chapter 3 'Interdependence and the Gains from Trade'

Q3 Give an example in which one person has an absolute advantage in doing something but another person has a comparative advantage.

Q4 Is absolute advantage or comparative advantage more important for trade? Explain your reasoning using the example in your answer to Question 3.

PA3 Pat and Kris are roommates. They spend most of their time studying (of course), but they leave some time for their favorite activities: making pizza and brewing root beer. Pat takes 4 hours to brew a gallon of root beer and 2 hours to make a pizza. Kris takes 6 hours to brew a gallon of root beer and 4 hours to make a pizza.

1. What is each roommate's opportunity cost of making a pizza? Who has the absolute advantage in making pizza? Who has the comparative advantage in making pizza?
2. If Pat and Kris trade foods with each other, who will trade away pizza in exchange for root beer?
3. The price of pizza can be expressed in terms of gallons of root beer. What is the highest price at which pizza can be traded that would make both roommates better off? What is the lowest price?