Sarah and her boyfriend Mike want to save some money to pay for their wedding. So they decided to help people in the neighborhood by cleaning their garages and mowing lawns. Sarah takes 60 minutes to clean a garage and 80 minutes to mow a lawn. Mike takes 80 minutes to clean a garage and 80 minutes to mow a lawn. Sarah and Mike devote 10 hours per week each to these activities and get paid $25 for each garage they clean an
$25 for each lawn they mow. Sarah says to Mike: "I have an absolute advantage in cleaning and we are equally productive in mowing. Therefore I should do both cleaning and mowing but you should only mow lawns." Mike disagrees. He thinks Sarah should specialize in cleaning garages and he should specialize in mowing lawns. Hel and Mike to resolve their dispute.
a) Who has an absolute advantage in cleaning garages? In mowing lawns? Explain.
b) Draw Sarah's and Mike's production possibilities frontiers. What are each individual's opportunity costs?
c) Who has a comparative advantage in cleaning garages? In mowing lawns? Explain.
d) Is Sarah right when she says that she should do both cleaning and mowing while Mike should only mow law may be Mike is right when he suggests that Sarah specializes in cleaning and he specializes in mowing? Illustrat and substantiate your answer with a numerical example.
Correct Answer:
Verified
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q423: If two countries specialize in the production
Q425: A circular flow diagram shows the flows
Q428: If a country operates on its PPF,
Q429: When a nation is producing the allocatively
Q434: In the United States, the government coordinates
Q437: A country has a comparative advantage in
Q438: Households are buyers in factor markets and
Q440: Over the past several decades, the United
Q493: An economy is producing efficiently if it
Q503: " ![]()
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents