The following table shows output per hour for Martha and Stewart who make gift baskets and potholders:
What is the opportunity cost of a gift basket for Martha? What is the opportunity cost of a gift basket for Stewart? Who has a comparative advantage in producing gift baskets? How can you tell?
Definitions:
Effective Rate
A measure of the actual interest rate on a loan or investment, taking into account the compounding of interest over a given period of time.
Compounding Periods
The intervals at which interest is calculated and added to the account's balance in the context of investing or saving.
Variable-Rate Loan
A loan whose interest rate changes over the life of the loan.
Fixed-Rate Loan
A loan whose interest rate remains constant.
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