Question

b) Who has the comparative advantage in the production of good B?
a. Alex

Alex Adam Good A Good A Good B 0 160 30 Good B 300 225 150 75 0 120 80 25 50 75 100 60 90 40 120 a) Who has the comparative advantage in the production of good A? a. Alex b. Adam c. Both Alex and A dam d. Neither Alex nor Adam

b. Adam

c. Both Alex and Adam

d. Neither Alex nor Adam

Answer 1

Ans) Comparative advantage is when one can produce any good with less opportunity cost.

For Alex÷

Opportunity cost of good A = good B sacrificed ÷ good A gained = 75÷25 = 3

Opportunity cost of good B = good A sacrificed ÷ good B gained = 25÷75 = 0.33

[Difference between any point in producing good A is 25 and difference between any point in producing good B ks 75]

For Adam÷

Opportunity cost of producing good A = good B sacrificed ÷ good A gained = 40÷30 = 1.33

Opportunity cost of producing good B= good A sacrificed ÷ good B gained = 30÷40 = 0.75

[Difference between any point in producing good A is 30 and difference between any point in producing good B is 40]

Here, opportunity cost of producing good A is less for Adam, so he has comparative advantage in producing good A.

Here, opportunity cost of producing good B is less for Alex, so he has comparative advantage in producing good B.

1) Option b

2) Option a