Angela and Ed are married. Angela can do $40 worth of household chores per hour, and Ed can do $15 worth of household chores per hour. In the labor market, Ed can earn $30/hour and Angela can earn $40/hour. The theory of comparative advantage suggests that:
A) Ed should specialize in household production and Angela should specialize in market work.
B) Angela should specialize in household production and Ed should specialize in market work.
C) Angela should specialize in both household production and market work.
D) Ed should specialize in both household production and market work.

Question

Quizplus · Accepted Answer

The theory of comparative advantage suggests that individuals should specialize in the activity where they have a lower opportunity cost, i.e., they give up relatively less by doing that activity. In this case, Angela can earn more in the market ($40/hour) than she can by doing household chores ($40/hour). Ed, on the other hand, can earn more in the household ($15/hour) than he can in the market ($30/hour). Therefore, Angela should specialize in market work and Ed should specialize in household production. This will lead to higher total income for the household.

Angela and Ed Are Married