Interdependence and the Gains from Trade : Algorithmic End of Chapter Graded Ass

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Interdependence and the Gains from Trade : Algorithmic End of Chapter Graded Assignment | apter 3 | Back to Assiqnment Due Sunday 06.17.18 at 11:45 PM Attempts: Keep the Highest: /4 3. Problems and Applications Q3 Rosa and Alyssa are roommates. They spend most of their time studying (of course), but they leave some time for their favorite activities: making pizza and brewing root beer. Rosa takes 3 hours to brew a gallon of root beer and 2 hours to make a pizza. Alyssa takes 7 hours to brew a gallon of root beer and 5 hours to make a pizza. Rosa's opportunity cost of brewing a gallon of root beer is ? , and Alyssa's opportunity cost of brewing a gallon of root beer is has a comparative advantage in brewing root beer has an absolute advantage in brewing root beer, and If Rosa and Alyssa trade foods with each other will trade away pizza in exchange for root beer. The price of pizza can be expressed in terms of gallons of root beer. The highest price at which pizza can be traded that would make better off is of root beer per pizza. of root beer, and the lowest price that makes both roommates better off is Grado le Now Save & Continue Continue without saving Session

Explanation / Answer

Rosa's opportunity cost of brewing a gallon of root beer is 2/ 3rd Pizza.

Alyssa's opportunity cost of brewing a gallon of root bear is 5/7th pizza.

Rosa has an absolute advantage in brewing beer because she needs only 3 hours to brew a gallon of beer, whereas, Alyssa needs 7 hours. Rosa has a comparative advantage in brewing beer since it is 2/3 of pizza for her, whereas, for Alyssa it is 5/7th of a pizza.

Rosa will produce root beer for pizza and Alyssa will produce pizza for root beer.

The price of pizza in terms of root beer must be greater than the opportunity cost of the seller (Rosa) and less than the opportunity cost of the buyer (Alyssa).

The highest price is 5/7 and lowest price is 2/3.

Root beer in terms of pizza Pizza in terms of root beer Rosa 3 (2/3) 2 (3/2) Alyssa 7 (5/7) 5 (7/5)

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