Question

Tina can allocate her 8-hour day between baking and cooking. Each hour devoted to baking yields 2 cakes whereas each hour spent cooking produces 4 plates of food. Tina's neighbor, Ingrid, can produce 3 cakes or 4 plates of food per hour.

Who has the absolute advantage in the production of cakes?

Who has absolute advantage in the production of food?

Who has a comparative advantage in the production of cakes?

Who has a comparative advantage in the production of food?

What is the opportunity cost for food?

Answer 1

First we will find output table.

Tina:

Cakes : 2 cakes per hour *8 hour =16 cakes a day

Food: 4 plates of food per day *8 hours =32 plates of food.

So tina either can make 16 cakes or 32 plate of food.

Ingrid:

Cakes : 3 cake per hour *8 hour=24 cakes.

Food: 4 plates of food per day *8 hours =32 plates of food.

So, Ingrid can make 24 cakes or 32 plates of food.

Q1.

Who has the absolute advantage in the production of cakes?

Ingrid has absolute advantage in making cake.

Explanation :

Absolute advantage is a situation where person can produce more goods and services than any other person with the same input.

Here Ingrid can make more cakes than tina.

Q2.

Who has absolute advantage in the production of food?

No one.

Explanation :

Because no one is making more than anyone.

Q3.

Who has a comparative advantage in the production of cakes?

Ingrid has comparative advantage in the production of cakes.

Explanation :

To find comparative advantage we need to calculate opportunity cost of product.

Tina either can make 16 cakes or 32 plate of food.

16 cake =32 plates of food

1 cake =32/16 plates of food.

1 cake =2 plates of food.

Now, Ingrid can make either 24 cakes or 32 plate of food.

24 cakes=32 plates of food

1 cake =32/24 plates of food.

1 cake =1.33 plates of food.

So, here for Ingrid, opportunity cost of making cake os lower than the tina. So Ingrid has comparative advantage in making cakes.

Q4.

Who has a comparative advantage in the production of food?

Explanation :

Opportunity cost of plate of food is:

Tina :

It can make either 16 cakes or 32 plate of food.

32 plates of food =16 cake

1 plates of food =16/32 cake

1 plate of food =0.5 cake

Ingrid :

He can make either 24 cakes or 32 plate of food.

32 plates of food =24 cakes.

1 plate of food=24/32 cakes.

1 plate of food =0.75 cakes.

Here Tina has lower opportunity cost of making plate of food than Ingrid. So it has comparative advantage in the production of plate of food.

Q5.

Opportunity cost of plate of food is:

Tina :

It can make either 16 cakes or 32 plate of food.

32 plates of food =16 cake

1 plates of food =16/32 cake

1 plate of food =0.5 cake

Ingrid :

He can make either 24 cakes or 32 plate of food.

32 plates of food =24 cakes.

1 plate of food=24/32 cakes.

1 plate of food =0.75 cakes.