Suppose Cathy and Lewis work in a bakery making pies and cakes. Suppose it takes Cathy 1.5 hours to make a pie and 1 hour to make a cake, and suppose it takes Lewis 2 hours to make a pie and 1.5 hours to make a cake. Which of the following statements is correct?
A)Cathy has a comparative advantage in pies, and Lewis has an absolute advantage in pies.
B)Cathy has a comparative and absolute advantage in pies.
C)Lewis has a comparative and absolute advantage in pies.
D)Lewis has a comparative advantage in pies, and Cathy has an absolute advantage in pies.

Question

Quizplus · Accepted Answer

For Cathy, in the time it takes her to make a pie, she could make 1.5 cakes, and in the time it takes her to make a cake, she could make 2/3 of a pie. For Lewis, in the time it takes him to make a pie, he could make 1.33 (= 2/1.5)cakes, and in the time it takes him to make a cake, he could make 3/4 of a pie. Thus, Cathy has the comparative advantage in cakes (because 2/3 < 3/4), and Lewis has the comparative advantage in pies (because 1.33 < 1.5). Since Cathy can make both pies and cakes more quickly than Lewis, she has the absolute advantage over him in both.

Suppose Cathy and Lewis Work in a Bakery Making Pies