In: Economics
Use the following scenario to answer the next eight questions: Rosa and Dirk produce basketballs and footballs. Rosa can produce six basketballs per hour or two footballs per hour. Dirk can produce three basketballs per hour or four footballs per hour.
Based on the scenario, which of the following is true?
1. Rosa has both an absolute and a comparative advantage in basketball production.
2. Rosa has neither an absolute nor a comparative advantage in football production.
3. Dirk has both an absolute and a comparative advantage in basketball production.
4. Rosa has both an absolute and a comparative advantage in football production.
5. Rosa has neither an absolute nor a comparative advantage in basketball production.
Rosa can produce higher number of basketballs. It means that Rosa has absolute advantage in producing basketballs
Dirk can produce higher number of footballs. It means that Dirk has absolute advantage in producing footballs.
Opportunity cost of producing basketball for Rosa=2/6 footballs=0.33 footballs per basketball
Opportunity cost of producing basketball for Dirk=4/3 footballs=1.33 footballs per basketball
Opportunity cost of producing basketball is lower in case of Rosa. It means Rosa has comparative advantage in producing basketball.
Opportunity cost of producing football for Rosa=6/2 basketballs=3 basketballs per football
Opportunity cost of producing football for Dirk=3/4 basketballs=0.75 basketballs per football
Opportunity cost of producing football is lower in case of Dirk. It means Dirk has comparative advantage in producing football.
We can summarize
Absolute Advantage
Basketball- Rosa
Football=Dirk
Comparative Advantage
Basketball- Rosa
Football-Dirk
1. Rosa has both an absolute and a comparative advantage in basketball production.
True- Refer above summary
2. Rosa has neither an absolute nor a comparative advantage in football production.
True- Refer above summary
3. Dirk has both an absolute and a comparative advantage in basketball production.
False- Refer above summary
4. Rosa has both an absolute and a comparative advantage in football production.
False-Refer above summary
5. Rosa has neither an absolute nor a comparative advantage in basketball production.
False-Refer above summary