Use the information below to answer the following questions.
Fact 2.3.3
In one hour, Sue can produce 50 caps or 10 jackets, and Tessa can produce 70 caps or 7 jackets.
-Refer to Fact 2.3.3. _______ has a comparative advantage in producing caps.If Sue and Tessa each specialize in producing the good in which they have a comparative advantage and trade 1 jacket for 7 caps, _______
A)Tessa; Tessa loses but Sue gains
B)Tessa; both Sue and Tessa gain
C)Sue; Tessa gains but Sue loses
D)Tessa; Sue loses but Tessa gains
E)Sue; both Sue and Tessa gain

Question

Quizplus · Accepted Answer

To determine comparative advantage, we compare the opportunity costs of producing caps and jackets for both Sue and Tessa. For Sue, the opportunity cost of producing 1 jacket is 5 caps (50 caps / 10 jackets). For Tessa, the opportunity cost of producing 1 jacket is 10 caps (70 caps / 7 jackets). Since Tessa's opportunity cost of producing jackets is higher, she has a comparative advantage in producing caps, where her opportunity cost is lower in comparison. When they specialize and trade 1 jacket for 7 caps, both benefit because Sue can obtain 7 caps at a lower cost than her opportunity cost of 5 caps per jacket, and Tessa can obtain a jacket at a lower cost than her opportunity cost of 10 caps per jacket.

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