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

Question

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To determine who has the comparative advantage in producing a particular good, we need to compare the opportunity cost of producing that good. One way to think about opportunity cost is to consider how much of one good must be given up to produce an additional unit of another good.

In this case, we can see that Joe can produce 2 sandwiches for every pizza he produces (20/10), while Beth can produce 4 sandwiches for every 3 pizzas she produces (36/27). This means that Joe's opportunity cost of producing a pizza is 2 sandwiches, while Beth's opportunity cost is only 4/3 sandwiches.

Since Beth has a lower opportunity cost of producing pizza, she has the comparative advantage in pizza production. Similarly, Joe has a lower opportunity cost of producing sandwiches (1/2 pizza) compared to Beth (3/4 pizza), so he has the comparative advantage in sandwich production.

Therefore, the best choice is for Beth to produce pizza and for Joe to produce sandwiches.

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