Question

1. Walter has reached a crossroads in his life. He is trying to decide whether to change careers. Currently Walter teaches chemistry but is considering entering a more lucrative line of work selling homemade pharmaceuticals.   Walter can either teach six classes very well or produce 12 grams of his new drugs in a day.   Interestingly Walter’s friend Jesse is in a similar predicament. Jesse can teach 3 classes very well or produce 2 grams of drugs during a day.

Walter’s opportunity cost of teaching one class:

(yes you can have fractional grams of drugs):

Jesse’s opportunity cost of teaching one class:

(yes you can have fractional grams of drugs):

Walter’s opportunity cost of making one gram of his drug:

(yes you can have fractional numbers of classes):

Jesse’s opportunity cost of making one gram of his drug:

(yes you can have fractional numbers of classes):

Who has an absolute advantage in teaching classes?  

Who has the comparative advantage in teaching classes?

Who has the comparative advantage in making drugs? _____________________

Answer 1

Answer :

Comparative Advantage can be defined as the relative cheapness of a good in a country that enables it to sell the same to foreign, which does not enjoy such comfort. Hence, this implies that if anyone can produce a product with relatively lower opportunity cost or using less factor endowment, it can gain from trade by exporting it.

Walter can either teach 6 classes very well or produce 12 grams of his new drugs in a day. Jesse can teach 3 classes very well or produce 2 grams of drugs during a day.

Walter’s opportunity cost of teaching one class is therefore 0.5 grams of drugs
Jesse’s opportunity cost of teaching one class is thus 2/3 grams of drugs
Walter’s opportunity cost of making one gram of his drug is 2 classes
Jesse’s opportunity cost of making one gram of his drug 3/2 or 1.5 classes
Walter has absolute advantage in teaching classes as he can produce more grams of drugs

Walter has the comparative advantage in teaching classes