Question
In an hour, Sue can produce 40 caps or 4 jackets and Tessa can produce 80 caps or 4 jackets. 1a. Calculate Sue's opportunity cost
In an hour, Sue can produce 40 caps or 4 jackets and Tessa can produce 80 caps or 4 jackets.
1a. Calculate Sue's opportunity cost of producing a cap.
1b. Calculate Tessa's opportunity cost of producing a cap.
1c. Who has a comparative advantage in producing caps?
1d. If Sue and Tessa specialize in producing the good in which they have a comparative advantage
and then trade 1 jacket for 15 caps, who gains?
Suppose that Tessa buys a new machine that enables her to make 20 jackets an hour. (She can
still make only 80 caps per hour.)
2a. Who now has a comparative advantage in producing jackets?
2b. Can Sue and Tessa gain from trade?
2c. Would Sue and Tessa still be willing to trade 1 jacket for 15 caps? Explain your answer.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started