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Fact 2.3.1
In an eight-hour day,Andy can produce either 24 loaves of bread or 8 kilograms of butter.In an eight-hour day,Rolfe can produce either 8 loaves of bread or 8 kilograms of butter.
-Given Fact 2.3.1,Andy and Rolfe
A)can gain from trade if Andy specializes in butter production and Rolfe specializes in bread production.
B)can gain from trade if Andy specializes in bread production and Rolfe specializes in butter production.
C)cannot gain from trade.
D)can trade,but only Rolfe will gain.
E)can trade,but only Andy will gain.

Question

Quizplus · Accepted Answer

Andy has a comparative advantage in producing bread because he can produce it at a lower opportunity cost compared to butter (3 loaves of bread per kilogram of butter vs. 1 loaf of bread per kilogram of butter for Rolfe). Rolfe has a comparative advantage in producing butter because he can produce it at a lower opportunity cost compared to bread (1 kilogram of butter per loaf of bread vs. 1/3 kilogram of butter per loaf of bread for Andy). By specializing in their respective areas of comparative advantage, both can gain from trade.

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