Suppose Joe can prepare 20 sandwiches or 10 pizzas in an hour and Beth can produce 36 sandwiches or 27 pizzas. The concept of comparative advantage concludes that
A) Beth should produce sandwiches and Joe should produce pizza.
B) Beth should produce both goods because she can produce more of both goods in an hour than can Joe.
C) Beth should produce pizza and Joe should produce sandwiches.
D) Beth should produce both goods and Joe should produce sandwiches.

Question

Quizplus · Accepted Answer

Comparative advantage refers to the ability of an individual, firm, or country to produce a specific product more efficiently than another individual, firm, or country. To determine the best choice, we need to compare the opportunity costs of producing each good.

Joe can produce 20 sandwiches or 10 pizzas in an hour. Therefore, the opportunity cost of producing one sandwich is 1/2 pizza, and the opportunity cost of producing one pizza is 2 sandwiches.

Beth can produce 36 sandwiches or 27 pizzas in an hour. Therefore, the opportunity cost of producing one sandwich is 3/4 pizza, and the opportunity cost of producing one pizza is 4/3 sandwiches.

Because Beth has a lower opportunity cost in producing pizzas, she should produce pizzas, and Joe should produce sandwiches. Therefore, choice C is the best option.

Suppose Joe Can Prepare 20 Sandwiches or 10 Pizzas in an Hour