Sue can produce 40 caps or four jackets in an hour, and Tessa can produce 80 caps or four jackets.

1. Would Sue and Tessa have any incentive to specialize? Explain your answers. [20 points]
2. If Sue and Tessa specialize in producing the good in which they have a comparative advantage and trade one jacket for 15 caps, who gains from the specialization and trade? Explain your answers. [20 points]
3. Suppose that Tessa buys a new jacket machine that enables her to make 20 jackets an hour. (She can still make only 80 caps per hour.)

• Would Sue and Tessa still be willing to trade one jacket for 15 caps? Explain your answers.