Bruce and Sheila both produce meat pies and bottles of tomato sauce; - Constant opportunity costs; - Bruce can produce 100 pies or 100 bottles of sauce; - Sheila can produce 400 pies or 200 bottles of sauce; and - In autarky (i.e. self-sufficiency without trade) each person produces both goods and that the preferred mix before trade (autarky) for Bruce is ( 80 ) pies and (20) bottles of sauce. For Sheila the preferred mix in autarky is (300) pies and (50) bottles of sauce. Use the information above to answer the following questions: a) i. What is the opportunity cost of 1 pie for Bruce? ii. What is the opportunity cost of 1 bottle of sauce for Bruce? iii. What is the opportunity cost of 1 pie for Sheila? iv. What is the opportunity cost of 1 bottle of sauce for Sheila? ( 0.5 marks each 4=2 marks) b) Which person has a comparative advantage in pies and which person has a comparative advantage in sauce? (1 mark) c) What is the minimum requirement that each person requires from the other (i.e. minimum terms of trade they willing to accept) in order to trade? (1 mark) d) Assume that each person specialises in one product and that the terms of trade (what they agree to trade) becomes 1 pie for 2/3 bottles of sauce. Assume that Sheila sells (90) pies to Bruce. How much does Bruce gain and how much does Sheila gain from trade in terms of both pies and bottles of sauce - as compared to autarky (pre trade)? (2 marks).

1. Bruce and Sheila both produce meat pies and bottles of tomato sauce; - Constant opportunity
costs; - Bruce can produce 100 pies or 100 bottles of sauce; - Sheila can produce 400 pies or 200
bottles of sauce; and - In autarky (i.e. self-sufficiency without trade) each person produces both
goods and that the preferred mix before trade (autarky) for Bruce is ( 80 ) pies and (20) bottles of
sauce. For Sheila the preferred mix in autarky is (300) pies and (50) bottles of sauce. Use the
information above to answer the following questions: a) i. What is the opportunity cost of 1 pie
for Bruce? ii. What is the opportunity cost of 1 bottle of sauce for Bruce? iii. What is the
opportunity cost of 1 pie for Sheila? iv. What is the opportunity cost of 1 bottle of sauce for
Sheila? ( 0.5 marks each 4=2 marks) b) Which person has a comparative advantage in pies and
which person has a comparative advantage in sauce? (1 mark) c) What is the minimum
requirement that each person requires from the other (i.e. minimum terms of trade they willing to
accept) in order to trade? (1 mark) d) Assume that each person specialises in one product and
that the terms of trade (what they agree to trade) becomes 1 pie for 2/3 bottles of sauce. Assume
that Sheila sells (90) pies to Bruce. How much does Bruce gain and how much does Sheila gain
from trade in terms of both pies and bottles of sauce - as compared to autarky (pre trade)? (2
marks)