Question

Tina and Harriet can produce bracelets and rings. Tina can make 0.5 bracelets in the time...

  1. Tina and Harriet can produce bracelets and rings. Tina can make 0.5 bracelets in the time it takes her to make one ring, and Harriet can make 4 rings in the time it takes her to make one bracelet. Who should specialise in bracelets? For what range of prices in terms of rings would Tina and Harriet be willing to trade bracelets and rings? Explain your answer.

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Answer #1


   Bracelet   Ring     
Tina   0.5   1     
Hariet   1   4     

Comparative advantage:

Tina   1/0.5 = 2 Rings   0.5/1 = 0.5 Bracelet     
Hariet   4/1 = 4 rings   1/4 = 0.25 Bracelet     

Tina has a comparative advantage in producing bracelet thus should specialise in it, since it is 0.50 times better in producing bracelet and only 0.25 times better in producing ring. Harriet has a Comparative advantage in producing ring, since it is 4.00 times better in producing ring and only 2.00 in producing bracelet
The terms of trade will be 1 bracelet for 2 rings and 1 ring for 1/2 bracelet

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