Consider a simple exchange economy with two people: Bob and Jake. Bob and Jake both have 10 hours of time available. They can use their time to do one of 2 things: make pancakes or make hamburgers. Bob can make 2 hamburgers in an hour or 1 pancake in an hour. Jake can make 3 pancakes in an hour and 2 hamburgers in an hour. Use this information to answer the following question:  Can Bob and Jake both benefit from trade if the terms of trade are one pancake per hamburger? Why or why not?

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.