Consider a simple exchange economy with two people: Bob and Jake. Bob and Jake both have ten hours of time available. The can use their time to do one of two things: make pancakes or make hamburgers. Bob can make two hamburgers in an hour or one pancake in an hour. Jake can make three pancakes in an hour or two hamburgers in an hour. Use this information to answer the following questions: a.) Draw Jake and Bob's PPFS, with hamburgers on the x-axis. b.) Give equations for Jake and Bob’s PPFS in y =mx+b form, still treating hamburgers as the x variable. c.) Who has absolute advantage in the production of hamburgers? Who has absolute advantage in the production of pancakes? d.) Who has comparative advantage in the production of hamburgers? Who has comparative advantage in the production of pancakes? e.) Can Bob and Jake both benefit from trade if the terms of trade are one pancake per hambruger? Why or why not?

Keep the Highest / 1 4. Shifts in production possibilities Suppose Spain produces two types of goods: agricultural and capital. The following diagram shows its current production possibilities frontier for alfalfa, an agricultural good, and locomotives, a capital good. Drag the production possibilities frontier (PPF) on the graph to show the effects of a breakout of avian flu that sickens millions of workers. Note: Select either end of the curve on the graph to make the endpoints appear. Then drag one or both endpoints to the desired position. Points will snap into position, so if you try to move a point and it snaps back to its original position, just drag it a little farther. 420 350 PPF 280 210 140 70 PPF 40 80 120 160 200 240 ALFALFA (Millions of bushels) LOCOMOTIVES (Tho us ands).

Suppose that research finds a link between high fructose corn syrup (HFCS) and obesity, which then leads American consumers to switch from HFCS products to pure cane sugar products. The graphs show the markets for cane sugar in Haiti and the United States before the studies were divulged. Shift the curves in the graphs, including the horizontal world price curve, to describe the new trade equilibrium that results after the switch in preferences of American households, and then answer the follow-up question. Assume that the United States and Haiti are the only non-HFCS sugar trading parties in the world and that there are no quotas, subsidies, or tariffs distorting these markets. Price ($) Incorrect 10 9 8 7 3 2 1 World price United States Domestic demand Domestic supply 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Quantity (thousands of pounds) According to your graphs, at the new equilibrium ✓cane sugar producers in Haiti benefit. ✔all Haitian cane sugar consumers benefit.…

Consider a pure exchange economy with two goods and two agents, A and B. Agents A and B have the same utility u (1, y) = /TY. Since the agents' initial allocations are given by eA = (4.2) and eB = (2.4), then the Walrasian equilibrium will be composed of the following consumption baskets: %3D O (XA,YA )=(2,2) e (Xg,Ye) = (4,4) (Xa, YA)=(1,0) e (Xg,Yg)=(5,6) (XA,YA)=(2,4) e (Xg,YB)=(4,2) (XA,YA)=(3,3) e (Xg,Ye)=(3,3) o (XA,YA)=(1,1) e (Xg,YB)=(5,5)