Assume you have just received your college degree. You are excited to be finished because next month you will be starting a new job with a high…

1. Assume you have just received your college degree. You are excited to be finished because next month you will be starting a new job with a high salary. With this new change in life, you have decided to buy your first home. 

  • List 3 opportunity costs of buying a home and explain each cost
  • Remember that opportunity costs are the things that you give up by choosing to buy a home.

 2. Rachel has decided to start her own business – Rachel’s Sweet Treats – baking and selling cakes and cookies. 

Choice

Cakes

Cookies

A

0

8

B

4

3

C

6

0

Use the table above to answer the following questions:

  • Draw a production possibilities curve to showcase the options for Rachel. Feel free to use a Word or Excel document to create the graph. 
  • Determine the opportunity costs for a move from B to C. Remember that to make more cakes, you have to give up cookies. How many cookies would you have to give up to make 6 cakes instead of 4 cakes?

3. Rachel’s Sweet Treats is located near another bakery, Sarah’s Bakery. Rachel can make 4 cakes and 3 dozen cookies each day. Sarah can make 6 cakes or 12 dozen cookies each day. 

  • Who has an absolute advantage in the bakery business?
  • Who has the comparative advantage in making cakes?
  • Who has the comparative advantage in making cookies?

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