Lina and Lily are flat mates. They spend most of their time working, but they leave some time for their favourite activities - making cakes and fine coffee. Lina takes five minutes to make a cup of coffee and half an hour to make a cake. Lily takes twenty minutes to make a cup of coffee and one hour to make a cake.

1. What is each flat mate's opportunity cost of making one cake? Who has the absolute advantage in making cakes? Who has the comparative advantage in making cakes? Explain.

2. If Lina and Lily trade foods with each other, who will trade away cakes in exchange for coffee? Explain. (1 mark)

3. The price of a cake can be expressed in terms of cups of coffee. What is the highest price at which cakes can be traded that would make both flat mates better off? What is the lowest price? Explain.