Sia
Question
Macroeconomics
Posted 8 months ago
Martha and Dave like to make tacos and cakes. The time it takes for Martha and Dave to make tacos and cakes is given in the table below.
\begin{tabular}{lll}
& Martha & Dave \\
\hline Time to make a taco & 10 minutes & 15 minutes \\
Time to make a cake & 20 minutes & 30 minutes
\end{tabular}
Which person has a comparative advantage in the production of tacos, and which person has a comparative advantage in the production of cakes?
Choose 1 answer:
(A) Both have a comparative advantage in producing both goods.
(B) Neither person has comparative advantage in producing either good.
(c) Dave has a comparative advantage in producing both goods.
(D) They both have a comparative advantage in producing tacos; neither person has a comparative advantage in producing cakes.
(E) Martha has a comparative advantage in producing both goods.
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Answer from Sia
Posted 8 months ago
Solution
a
Comparative Advantage: Comparative advantage is determined by comparing the opportunity costs of producing goods between two individuals
b
Opportunity Cost Calculation:
- For Martha:
- Time to make a taco = 10 minutes
- Time to make a cake = 20 minutes
- Opportunity cost of 1 taco = 20/10 = 2 cakes
- Opportunity cost of 1 cake = 10/20 = 0.5 tacos
- For Dave:
- Time to make a taco = 15 minutes
- Time to make a cake = 30 minutes
- Opportunity cost of 1 taco = 30/15 = 2 cakes
- Opportunity cost of 1 cake = 15/30 = 0.5 tacos
c
Comparative Advantage Determination:
- Martha's opportunity cost of making a taco (2 cakes) is the same as Dave's (2 cakes).
- Martha's opportunity cost of making a cake (0.5 tacos) is the same as Dave's (0.5 tacos).
- Since their opportunity costs are identical, neither has a comparative advantage in producing either good
Answer
(B) Neither person has comparative advantage in producing either good.
Key Concept
Comparative Advantage
Explanation
Comparative advantage is determined by the opportunity cost of producing goods. Since Martha and Dave have identical opportunity costs for both tacos and cakes, neither has a comparative advantage in producing either good.
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