Suppose Cathy and Lewis Work in a Bakery Making Pies

question 71

Multiple Choice

Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct?

• A)Cathy has a comparative advantage in pies, and Lewis has an absolute advantage in pies.
• B)Cathy has a comparative and absolute advantage in pies.
• C)Lewis has a comparative and absolute advantage in pies.
• D)Lewis has a comparative advantage in pies, and Cathy has an absolute advantage in pies.

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Definitions:

Federal Reserve Act

A U.S. legislation in 1913 that established the Federal Reserve System as the central banking system of the United States, designed to provide the country with a safer, more flexible, and more stable monetary and financial system.

Fed

The Federal Reserve System, which is the central banking system of the United States, responsible for monetary policy and financial regulation.

GDP

Gross Domestic Product, the total value of all final goods and services produced within a country in a given period of time.

Tax Cuts

A reduction in the amount of taxes imposed by a government on individuals or businesses.