Reference no: EM13126930
Cameron and Drew are neighbors and are both skilled in carpentry. If Cameron spends a full day on painting, he can paint 6 rooms. Alternatively, if he spends a full day on installing windows, he can install 3 windows. If Drew spends a full day on painting, she can paint 16 rooms. Alternatively, spending the whole day on installing windows will yield 4 installed windows.
a. Identify who has the absolute advantage in painting rooms? Who has the absolute advantage in installing windows? Briefly explain how you derived your answer.
b. Identify who has the comparative advantage in painting rooms? Who has the comparative advantage in installing windows? Briefly explain how you derived your answer.
c. In which activity should each person specialize in order to gain from trading?
d. Suppose that Drew and Cameron specialize, according to part c, and agree to a term of trade of 1 installed window for 3 rooms. Based on part c, Drew will be buying windows from Cameron. Briefly explain why this term of trade is better for her than installing windows herself. (The same can be demonstrated for Cameron regarding his own purchases of painted rooms under these terms, however, you are not required to demonstrate this for this problem.)
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