ARE 201 · Unit 3

Review Session

Answer Version

PPF · Absolute Advantage · Comparative Advantage
followed by a four-round partner activity

Key concept 1

Production Possibilities Frontier (PPF)

A PPF shows the maximum feasible combinations of two outputs that can be produced with current resources and technology.

The trade-off: moving along the frontier means producing more of one output and less of the other.

Remember: a PPF describes production possibilities—not preferences and not what a person should choose.

On = efficient Inside = inefficient Outside = unattainable

Key concept 2

Absolute Advantage

A producer has an absolute advantage if the producer can make more output with the same quantity of inputs.

Fair comparison: hold the input fixed—such as one hour of work—then compare output rates.

Different total time endowments can produce misleading endpoint comparisons. Compare productivity using the same amount of time.

How to identify it

1

Choose one output

Compare producers one good at a time.

2

Use the same input

Convert both technologies to output per hour.

3

Find the higher rate

More output per hour means absolute advantage.

productivity = output ÷ input

Key concept 3

Comparative Advantage

A producer has a comparative advantage in an output when the producer has the lower opportunity cost of producing it.

Specialization rule: assign each task to the producer who gives up less of the other output.

A producer can be better at everything in absolute terms but still lack comparative advantage in one activity.

Keep the units visible

OC of 1 unit of X = Y forgone ÷ X gained

1

Calculate both costs

Find each producer's opportunity cost of X.

2

Compare like with like

Use the same units for both producers.

3

Choose the lower cost

Lower opportunity cost means comparative advantage.

Today's interactive practice

Join the Activity

Open the Room link

Use your phone or laptop. The activity will assign your role and pair you with a partner.

Open Siri & Alexa Activity ↗ https://siri-alexa.zihanzhang.trade/room/are201_unit3

1Use one browser and one tab.

2Stay on the waiting screen until the instructor begins.

3Keep the same tab open throughout all four rounds.

Scan to join

QR code linking to the Siri and Alexa interactive activity Room.

Scan → open the Room → wait for your partner

Today's interactive practice

Siri & Alexa: Cookies and Windows

The background

Siri and Alexa make cookies for neighborhood friends. Before going to the park, they must wash all 45 windows in their house.

Each sibling has 3 hours (180 minutes). Time spent washing windows cannot be used to make cookies.

Production technology

Siri

6 windows
in 15 minutes

15 cookies
in 30 minutes

Alexa

5 windows
in 10 minutes

40 cookies
in 60 minutes

You will be assigned one role and work with a partner through four instructor-paced rounds. Stay in one browser tab and wait at each stage gate.

1

Draw and Check a PPF

Work from the productivity numbers for your assigned role.

PPF

1

Find your two intercepts

Use the full 180 minutes to calculate all-cookies output and all-windows output.

2

Draw your PPF

Choose one endpoint on each axis; the activity connects them with a straight line.

3

Check your partner

Inspect your partner's endpoints and mark the PPF correct or incorrect.

Answer key

Siri's PPF

All 180 minutes in one activity:

(90 cookies, 0 windows)
↔ (0 cookies, 72 windows)

Alexa's PPF

All 180 minutes in one activity:

(120 cookies, 0 windows)
↔ (0 cookies, 90 windows)

Check: each intercept equals the 3-hour maximum for that output.

2

Calculate Opportunity Costs

Opportunity cost must include the output being given up.

OC

1

Calculate your own costs

Find the windows forgone per cookie and the cookies forgone per window.

2

Keep the units attached

Decimals are allowed; round to two decimal places when needed.

3

Check your partner's numbers

Judge each of the two submitted opportunity costs separately.

Answer key

Siri1 cookie costs 0.80 window
1 window costs 1.25 cookies

Alexa1 cookie costs 0.75 window
1 window costs 1.33 cookies

Absolute advantage

Alexa has absolute advantage in both cookies and windows.

Comparative advantage

Siri: windows
Alexa: cookies

3

Judge Two Claims

Use opportunity cost—not speed alone—to defend your position.

Claims

1

Respond to Claim 1

Agree or disagree, then give at least one full sentence explaining why.

2

Respond to Claim 2

Again choose a position and justify it from your assigned role's point of view.

3

Compare your reasoning

Read your partner's responses and prepare to negotiate the window split.

Answer key

Disagree Equal split

An equal split assigns some windows to Alexa, who gives up more cookies per window.

Disagree Alexa washes all

Alexa is faster, but Siri has the lower opportunity cost of washing a window.

Efficient specialization: Siri washes the windows; Alexa specializes in cookies.

4

Negotiate and Calculate

Reach one binding contract that assigns all 45 windows.

Contract

1

Propose a whole-number split

Enter windows washed by Siri from 0 to 45; Alexa washes the remainder.

2

Review output before accepting

Use the preview to compare Siri's cookies, Alexa's cookies, and the team total.

3

Accept and verify the contract

After agreement, independently calculate the total cookies produced.

Optimal contract

Siri washes all 45 windows

Washing time: 45 × 2.5 = 112.5 min
Cookie time: 180 − 112.5 = 67.5 min
Cookies: 67.5 × 0.5 = 33.75

Alexa washes 0 windows

Cookie time: 180 min
Cookies: 180 × (2/3) = 120

33.75 + 120 = 153.75 cookies

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