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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 bread production and Rolfe specializes in butter production.
B)can trade, but only Rolfe will gain.
C)cannot gain from trade.
D)can trade, but only Andy will gain.
E)can gain from trade if Andy specializes in butter production and Rolfe specializes in bread production.

Question

Quizplus · Accepted Answer

Andy has a comparative advantage in bread production since he can produce 3 loaves of bread in the time it takes Rolfe to produce 1 loaf. On the other hand, Rolfe has a comparative advantage in butter production since he can produce 1 kilogram of butter in the time it takes Andy to produce 3 kilograms. By specializing, they can produce more of each good and trade with each other. Andy will specialize in bread production and produce 24 loaves of bread in an eight-hour day, while Rolfe specializes in butter production and produce 8 kilograms of butter in the same time. They can then trade 12 loaves of bread for 4 kilograms of butter, both of them gaining more than if they produce everything on their own.

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