Question

Tom can solve 10 math problems or write 2 short stories in an hour. Susan can solve 15 math problems or write 2 short stories in an hour. Assuming each person produces correct math solutions and stories of equally quality, answer the questions below. Make sure to explain your reasoning.
A. Explain who has an absolute advantage and in what product?
B. Explain whether or not there is any basis for trade between Tom and Susan? Who should produce what?
C. Explain how can Susan gain anything in trading with Tom?

Answer 1

Answer:

A) Susan has an absolute advantage in solving math problems, because she can solve 15 problems per hour while Tom can only solve 10.

B) They can both benefit from trade because of comparative advantages, Susan should solve math problems and Tom should write short stories.  

C) Susan would gain if she can trade math problems for short essays, for example if Susan solves 12 math problems for Tom in exchange for 2 short stories, then both would gain from trade. Susan would gain 3 math problems and Tom would gain 2.