Question

For part A and B, determine absolute and relative advantage. Then graph and write the equation on their PPF.

A. It takes Alison 24 hrs to make 1 unit of x and 6 hrs to make 1 unit of y. On the other hand it takes bob 12hrs to produce 1 unit of x and 4 hrs to produce 1 unit of y. Note that Alison and Bob each have only 96 hrs to spend on the production of X and Y.

B. It takes Alison 8 hrs to make 1 unit of x and 4hrs to make 1 unit of Y. On the other hand it takes Bob 12 hrs to produce X and 2 hrs to produce 1 unit of Y. Note that Alison and Bob each only have 120 hrs to spend on the production of X and Y.

Answer 1

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Solution,

By utilizing the full resource bob can produce more of both goods than Alison.

hence, Bob has an absolute advantage in both the good.

Opportunity cost is the cost of occurring when an additional gain in the good due to loss in the other good.

in the case of Bob,

8 unit of good x and  24 unit of good y

Opportunity cost

1 unit of good x = 24/8= 3 units of good Y

1 unit of good y = 1/3 units of good X

in the case of Alison,

4 unit of good x and 16 unit of good y

Opportunity cost

1 unit of good x = 16/4= 4 units of good Y

1 unit of good y = 1/4 units of good X

Bob has a comparative advantage in the good Y because it has a lower opportunity cost 3 than 4 Alison

Alison has a comparative advantage in the good X because it has a lower opportunity cost 1/4 than 1/3 Bob

Solution B

By utilizing the full resource bob can produce more good Y than Alison and Alison can produce more good x than bob

hence, Bob has an absolute advantage in both the good y and Alison has an absolute advantage in good x.

Opportunity cost is the cost of occurring when an additional gain in the good due to loss in the other good.

in the case of Bob,

10 unit of good x and 60 unit of good y

Opportunity cost

1 unit of good x = 60/10= 6 units of good Y

1 unit of good y = 10/60 = 1/6 units of good X

in the case of Alison,

15 unit of good x and 30 unit of good y

Opportunity cost

1 unit of good x = 30/15 = 2 units of good Y

1 unit of good y = 15/30 = 1/2 units of good X

Bob has a comparative advantage in the good X because it has a lower opportunity cost 1/6 than 1/2 Alison

Alison has a comparative advantage in the good Y because it has a lower opportunity cost 2 than 6 Bob