Table 3-1

-Refer to Table 3-1.The rancher has an absolute advantage in
A)both goods, and the farmer has a comparative advantage in meat.
B)both goods, and the farmer has a comparative advantage in potatoes.
C)meat, and the farmer has a comparative advantage in potatoes.
D)meat, and the farmer has a comparative advantage in neither good.

Question

Table 3-1
 
-Refer to Table 3-1.The rancher has an absolute advantage in
A)both goods, and the farmer has a comparative advantage in meat. 
B)both goods, and the farmer has a comparative advantage in potatoes. 
C)meat, and the farmer has a comparative advantage in potatoes. 
D)meat, and the farmer has a comparative advantage in neither good.

Quizplus · Accepted Answer

The rancher can produce 10 pounds of meat or 5 pounds of potatoes in one hour, while the farmer can produce 4 pounds of meat or 8 pounds of potatoes in one hour. Therefore, the rancher has an absolute advantage in producing meat and potatoes. However, the farmer has a comparative advantage in producing potatoes because they have a lower opportunity cost. For every pound of potatoes, the farmer gives up only 0.5 pounds of meat (4/8), while the rancher gives up 1 pound of meat for every pound of potatoes (10/5). Therefore, the farmer should focus on producing potatoes, and the rancher should focus on producing meat, resulting in a mutually beneficial trade relationship.

Table 3-1 -Refer to Table 3-1.The Rancher Has an Absolute Advantage in an Absolute