403ps2 - Economics 403 Spring 2009 Professor Alexander...

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1 Economics 403 Spring 2009 Professor Alexander Problem Set 2 Due: Wednesday, January 21, at 11:00 A.M. R3. ( 10 pts. ) You Roommate Paint (P) 1 P costs ¼ S 1 P costs 1/25 S Write (S) 1 S costs 4 P 1 S costs 25 P a.) False . You sacrifice more songs for each picture painted when compared to your roommate. b.) Meaningless . Comparative advantage is determined by the relative cost for a given activity across individuals. It is not determined by the relative cost for a given individual across activities. c.) False . Your roommate sacrifices more pictures for each song written when compared to the cost you incur. d.) False . While you and your roommate each have a comparative advantage, there are no gains from trade at the terms of trade 1 song for 1 picture. Why? Suppose you spend 16 hours writing 2 songs and your roommate spends 8 hours painting 2 pictures. If you exchange 1 song for 1 picture, you lose 6 hours because you could paint a picture and write a song in 10 hours. Your roommate, however, would gain 96 from the trade. Thus, this is an example in
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403ps2 - Economics 403 Spring 2009 Professor Alexander...

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