ECON162 | Macroeconomics in Economics - Boston university
- Your roommate Pat decides to help with the party. The amounts of brownies and cookies which can be produced in an hour (if all resources are devoted to that good) are shown by the following table:
YOU PAT COOKIES PER HOUR 20 5 BROWNIES PER HOUR 40 20
Where both cookies and brownies are measured in units. a. Who has an absolute advantage in producing brownies? Cookies? b. For you, what is the opportunity cost of producing one brownie? Of one cookie? c. For Pat, what is the opportunity cost of producing one brownie? Of one cookie? d. Should you and Pat specialize? Who should produce what? e. Suppose that you have so many guests that you have to split up the party into two rooms. You throw one party and Pat throws the other. What are the terms of trade? (At what rate would you each be willing to trade?) f. Using graphs for both you and Pat, show that trade allows each of you to achieve a point on your consumption possibilities curve which is greater than your production possibilities curve. Be sure to label all curves and axes. f. What is this principle called?