Table 2.5

Table 2.5 shows the output per month of two people, Fred and Barney. They can either devote their time to making pogo sticks or making unicycles.
-Refer to Table 2.5. Which of the following statements is true?
A)Fred has a comparative advantage in making both products.
B)Barney has a comparative advantage in making both products.
C)Barney has a comparative advantage in making pogo sticks and Fred in making unicycles.
D)Barney has a comparative advantage in making unicycles and Fred in making pogo sticks.

Question

Table 2.5
  
Table 2.5 shows the output per month of two people, Fred and Barney. They can either devote their time to making pogo sticks or making unicycles.
-Refer to Table 2.5. Which of the following statements is true?
A)Fred has a comparative advantage in making both products. 
B)Barney has a comparative advantage in making both products. 
C)Barney has a comparative advantage in making pogo sticks and Fred in making unicycles. 
D)Barney has a comparative advantage in making unicycles and Fred in making pogo sticks.

Quizplus · Accepted Answer

To determine comparative advantage we need to look at the opportunity cost of producing each good. The opportunity cost is the amount of one good that must be given up in order to produce one unit of the other good.

For Fred, if he produces one pogo stick, he gives up the opportunity to produce 1/2 of a unicycle (10/20). If he produces one unicycle, he gives up the opportunity to produce 2 pogo sticks (4/2).

For Barney, if he produces one pogo stick, he gives up the opportunity to produce 1/3 of a unicycle (6/18). If he produces one unicycle, he gives up the opportunity to produce 3 pogo sticks (9/3).

Therefore, Barney has a lower opportunity cost for producing unicycles and Fred has a lower opportunity cost for producing pogo sticks. Therefore, Barney has a comparative advantage in producing unicycles and Fred has a comparative advantage in producing pogo sticks.

Table 2.5 Table 2.5 Shows the Output Per Month of Two People