Question

Timothy and John both work 8 hours a day. Both Timothy and John can produce shoes or clothes, though at different rates. For Timothy, each pair of shoes takes 2 hours to produce, and each unit of clothing takes 4 hours to produce. For John, each pair of shoes takes 1 hour to produce, and each unit of clothing takes 5 hours to produce. (Timothy/John/no one) has the absolute advantage in producing shoes and (Timothy/John/no one)

has the absolute advantage in producing clothes.

From above we see that (Timothy/John/no one) has the comparative advantage in producing shoes and (Timothy/John/no one) has the comparative advantage in producing clothes.

Answer 1

John can produce a pair of shoes in 1 hour as compared to Timothy who can make the same in 2 hours.

Timothy can make a unit of clothing in 4 hours as compared to John who can make the same in 5 hours.

Hence:

John has the absolute advantage in producing shoes.

Timothy has the absolute advantage in producing clothes.

Now, if John has 1 hour, he can either produce 1 pair of shoes or produce 1/5 units of clothes.

Similarly, if Timothy had 2 hours, he can either produce 1 pair of shoes or produce 1/2 unit of clothes.

Hence the opportunity cost for John to produce shoes 1/5 < 1/2 the opportunity cost for Timothy to produce shoes.

Hence:

John has a comparatime advantage in producing shoes.

Similary, if John has 5 hours to produce a unit of cloth, he can either produce 1 unit of cloth or (5/1) = 5 units of shoes.

If Timothy had 4 hours to produce a unit of cloth, he can either produce 1 unit of cloth or (4/2) = 2 units of shoes.

Hence Timothy's opportunity cost of producing cloth(2<5) is lesser than John's opportunity cost of producing cloth.

Hence:

Timothy has a comparative advantage in producing clothes.