Multiple Choice
Who has the absolute advantage in making scrambled eggs?
2. Introductory Economic Models
PPF - Comparative Advantage and Absolute Advantage
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Who has the comparative advantage in making fresh squeezed orange juice?
A
Joe
B
Carla
C
No One
Verified step by step guidance1
Identify the production possibilities for both Joe and Carla from the graphs. Joe can produce a maximum of 4 units of fresh squeezed orange juice or 4 units of scrambled eggs. Carla can produce a maximum of 4 units of fresh squeezed orange juice or 8 units of scrambled eggs.
Calculate the opportunity cost for Joe to produce one unit of fresh squeezed orange juice. Since Joe can produce 4 units of either good, the opportunity cost of 1 unit of orange juice is 1 unit of scrambled eggs.
Calculate the opportunity cost for Carla to produce one unit of fresh squeezed orange juice. Carla can produce 4 units of orange juice or 8 units of scrambled eggs, so the opportunity cost of 1 unit of orange juice is 2 units of scrambled eggs.
Compare the opportunity costs. Joe's opportunity cost for producing orange juice is 1 scrambled egg per unit, while Carla's is 2 scrambled eggs per unit.
Determine who has the comparative advantage. The person with the lower opportunity cost for producing a good has the comparative advantage. In this case, Joe has a lower opportunity cost for producing fresh squeezed orange juice.
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