Since pats opportunity cost of making pizza is less

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Since Pat's opportunity cost of making pizza is less than Kris's, Pat has a comparative advantage in making pizza. b. Since Pat has a comparative advantage in making pizza, she will make pizza and exchange it for root beer that Kris makes. c. The highest price of pizza in terms of root beer that will make both roommates better off is 2/3 of a gallon of root beer. If the price were higher than that, then Kris would prefer making her own pizza (at an opportunity cost of 2/3 of a gallon 16

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of root beer) rather than trading for pizza that Pat makes. The lowest price of pizza in terms of root beer that will make both roommates better off is 1/2 gallon of root beer. If the price were lower than that, then Pat would prefer making her own root beer (she can make 1/2 gallon of root beer instead of making a pizza) rather than trading for root beer that Kris makes. 5. a. Since a Canadian worker can make either two cars a year or 30 bushels of wheat, the opportunity cost of a car is 15 bushels of wheat. Similarly, the opportunity cost of a bushel of wheat is 1/15 of a car. The opportunity costs are the reciprocals of each other. b. See Figure 4. If all 10 million workers produce two cars each, they produce a total of 20 million cars, which is the vertical intercept of the production possibilities frontier. If all 10 million workers produce 30 bushels of wheat each, they produce a total of 300 million bushels, which is the horizontal intercept of the production possibilities frontier. Since the tradeoff between cars and wheat is always the same, the production possibilities frontier is a straight line. If Canada chooses to consume 10 million cars, it will need 5 million workers devoted to car production. That leaves 5 million workers to produce wheat, who will produce a total of 150 million bushels (5 million workers times 30 bushels per worker). This is shown as point A on Figure 4. c. If the United States buys 10 million cars from Canada and Canada continues to consume 10 million cars, then Canada will need to produce a total of 20 million cars. So Canada will be producing at the vertical intercept of the production possibilities frontier. But if Canada gets 20 bushels of wheat per car, it will be able to consume 200 million bushels of wheat, along with the 10 million cars. This is shown as point B in the figure. Canada should accept the deal because it gets the same number of cars and 50 million more bushes of wheat. Figure 4 17
6. Though the professor could do both writing and data collection faster than the student (that is, he has an absolute advantage in both), his time is limited. If the professor's comparative advantage is in writing, it makes sense for him to pay a student to collect the data, since that is the student's comparative advantage. 7. a. English workers have an absolute advantage over Scottish workers in producing scones, since English workers produce more scones per hour (50 vs. 40). Scottish workers have an absolute advantage over English workers in producing sweaters, since Scottish workers produce more sweaters per hour (2 vs. 1). Comparative advantage runs the same way.

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