Worksheet 1 Econ 100, Spring 2013 Sue and Jen love sandwiches. As shown in the table below, they have different abilities when it comes to the production of peanut butter and jelly. Sue can make 1 jar of peanut butter in 30 min. and 1 jar of jelly in 1 hour (60 min.). Jen can make 1 jar of peanut butter in 15 min and one jar of jelly in 45 min. Opportunity Cost a. Draw the daily production possibility frontier for both Sue and Jen if they each have 4 hours to work each day. (Hint: Both women produce each good at a constant rate. They do not get tired.) b. Who has the absolute advantage in making peanut butter? Who has the comparative advantage in making peanut butter? What about Jelly? Absolute Advantage Comparative Advantage Peanut Butter: Jen Peanut Butter: Jen Jelly: Jen Jelly: SuePeanut Butter Jelly Sue ½ Jelly 2 PB Jen ? Jelly 3 PB Peanut Butter Jelly Sue 30 min. 60 min. Jen 15 min. 45 min. 4 8 16 5.33 24 9.33 PPF -Jen PPF -Sue PPF -Joint
c. If Sue and Jen each spend half their time making peanut butter and half their time making Jelly, how much of each good will be produced? If Sue divides her time equally between producing peanut butter and jelly, she can produce 4 jars of peanut butter and 2 jars of jelly. If Jen divides her time equally between producing peanut butter and jelly, she can produce 8 jars of peanut butter and 2.665 jars of jelly. That’s a total of 12 jars of peanut butter and 4.665 jars of jelly. d. If Sue and Jen decided to specialize and trade, in which good should each person specialize? How much of each good can be produced if they spend all their time specializing? They should specialize according to their comparative advantage. Sue should specialize in producing jelly, and Jen should specialize in producing peanut butter. If Sue spends all her time producing jelly, she can produce 4 jars of jelly. If Jen spends all her time producing peanut butter, she can produce 16 jars of peanut butter. (Draw the Joint PPF and show that the answer to…