Victoria and David share a flat. They spend most of their time studying (of course), but they leave some time for their favourite activities: cooking pizza and making homebrew beer. Victoria takes 4 hours to produce 1 barrel of home-brew and 2 hours to make a pizza. David takes 6 hours to brew 1 barrel of beer and 4 hours to make a pizza.

a. What is each flatmate’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 Victoria and David trade foods with each other, who will trade away pizza in exchange for home-brew?

c. The price of pizza can be expressed in terms of barrels of home-brew. What is the highest price at which pizza can be traded that would make both flatmates better off? What is the lowest price? Explain.