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The table below shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making

  1. The table below shows the output per week of two jewelers, Serena and Haley. They can either devote their time to making bracelets or making necklaces.

Serena

Haley

Bracelets

8

9

Necklaces

16

12

  • Who has the absolute advantage in making bracelets?
  • Who has the absolute advantage in making necklaces?
  • What is Haley's opportunity cost of making a bracelet?
  • What is Serena's opportunity cost of making a bracelet?
  • What is Haley's opportunity cost of making a necklace?
  • What is Serena's opportunity cost of making a necklace?
  • Who has the comparative advantage in making bracelets?
  • Who has the comparative advantage in making necklaces?

  1. What does absolute advantage mean? What does comparative advantage mean? Explain which is the basis for trade, and why.

  1. You and your neighbor are the only people in a world that produces only cashews and mushrooms. You do not engage in trade with each other. On your own, you can each produce the following per day:

You

Neighbor

Cashews

Mushrooms

Cashews

Mushrooms

Only gather cashews

12 pounds

0 pounds

4 pounds

0 pounds

Only gather mushrooms

0 pounds

6 pounds

0 pounds

4 pounds

Right now, you each split your time between gathering each product. You currently gather and consume eight pounds of cashews and two pounds of mushrooms, while your neighbor is gathering and consuming three pounds of cashews and one pound of mushrooms. Show numerically how specialization and then trade with each other can make both of you better off. Who specializes in the production of each product, and what is a trade you could then make with each other that would be beneficial to both of you?

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