An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. ________ has the comparative advantage in computers and ________ has the comparative advantage in shirts.
A)Paula; Paula
B)Paula; Ricardo
C)Ricardo; Paula
D)Ricardo; Ricardo

Question

Quizplus · Accepted Answer

Since Ricardo's opportunity cost of producing a computer is lower than Paula's (2 shirts < 4 shirts), Ricardo has a comparative advantage in computers. Similarly, since Paula's opportunity cost of producing a shirt is less than Ricardo's (1/4 of a computer < 1/2 of a computer), Paula has a comparative advantage in shirts.

An Economy Has Two Workers, Paula and Ricardo