> The following figures represent the amount that can be produced with a fixed amount of factor inputs. Panama Honduras Bananas 100 160 Sugarcane 50 40 A. Which country has the absolute advantage in bananas? Which country has the absolute advantage in sugarcane? Explain numerically how you arrive at that answer? /3) B. What is Panama's opportunity cost for producing one unit of bananas? What is Honduras's opportunity cost for producing one unit of sugarcane? ( _/2) C. Which country has the comparative advantage in bananas? Which country has the comparative advantage in sugarcane? Should these countries trade? If so, how? (__ /4) D. Identify a terms of trade that benefits both countries? Explain why this will benefit Panama /3) 5. ( /12) Sam and Phil are roommates. They spend most of their time studying (of course!), but they like to spend some time for their favourite activities: making pizza and brewing huckleberry wine. Sam takes 4 hours to brew a gallon of huckleberry wine and 2 hours to make a pizza. Phil takes 6 hours to brew a gallon of huckleberry wine and 4 hours to make a pizza. 6. ( A. ( A. What is each roommates' opportunity cost of making a pizza? Who has the absolute advantage in making pizza? Who has the comparative advantage in making pizza?. (_ /4) B. If Sam and Phil trade foods with each other, who will trade away pizza in exchange for huckleberry wine? Explain. ( 13) C. The price of pizza can be expressed in terms of gallons of huckleberry wine. What is the highest price at which pizza can be traded that would make both roommates better off? What is the lowest price? Explain. ( /5) /11) Opportunity Cost, Positive vs Normative Statements, and Perverse Incentives 3) You win $100 in a basketball pool. You have a choice between spending the money now or putting it in a bank paying at 5% interest per annum. What is the opportunity cost of spending the $100 now? Explain, first defining opportunity cost. B. ( /4) Classify the following statements as either normative or positive statements: i. Society ought to require welfare recipients to take drug tests before getting government help. ii. 2+2=5 iii. Scarcity requires us to make trade-offs amongst competing options. iv. The Federal Reserve should increase the money supply and spur inflation. C. ( 4) The Social Security system provides income for people over age 65. If a recipient of Social Security decides to work and earn some income, the amount he or she receives in Social Security benefits is typically reduced. i. How does the provision of Social Security affect people's incentive to save whilst working? Explain. ii. How does the reduction in benefits associated with higher earnings affect people's incentive to work past age 65? Explain.