3. Pat and Kris are roommates. They spend most of their time studying (of course), but they...

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3. Pat and Kris are roommates. They spend most of their time studying (of course), but they leave some time for their favourite activities: making pizza and brewing root beer. Pat takes 4 hours to brew 5 L of root beer and 2 hours to make a pizza. Kris takes 6 hours to brew 5 L of root beer and 4 hours to make a pizza.

a. 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?

b. If Pat and Kris trade products with each other, who will trade away pizza in exchange for root beer?

c. The price of pizza can be expressed in terms of litres 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? Explain.

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Principles Of Macroeconomics

ISBN: 9780176591977

7th Canadian Edition

Authors: N. Mankiw, Ronald Kneebone, Kenneth McKenzie

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