Suppose it takes Paul 3 hours to bake a cake and 2 hours to move the lawn, and suppose it takes Tom 2 hours to bake a cake and 1 hour to mow the lawn. Which of the following statements is correct?
A)Paul has the absolute advantage in baking cakes
B)Paul has the comparative in mowing the lawn
C)Paul has the comparative in baking cakes
D)Paul has the absolute advantage in mowing the lawn.

Question

Quizplus · Accepted Answer

To find the absolute advantage, we compare the productivity of each worker in terms of time taken by them. Paul takes 3 hours for baking a cake and Tom takes 2 hours. Therefore, Tom has the absolute advantage in baking cakes. Similarly, Paul takes 2 hours for moving the lawn while Tom takes 1 hour, implying Tom has the absolute advantage in mowing the lawn.
To find the comparative advantage, we need to compare the opportunity costs of each worker. Opportunity cost refers to the value of the next-best alternative. For Paul, the opportunity cost of 1 hour of baking a cake is 2/3 hours of mowing the lawn (because that's how long it takes him to mow the lawn). For Tom, the opportunity cost of 1 hour of baking a cake is 1/2 hours of mowing the lawn (because that's how long it takes him to mow the lawn). Therefore, Paul has a comparative advantage in baking cakes, as his opportunity cost (in terms of lawn moving) is lower for baking cakes than Tom's opportunity cost. Similarly, Tom has a comparative advantage in mowing the lawn as his opportunity cost (in terms of baking cakes) is lower for mowing the lawn than Paul's opportunity cost.

Suppose It Takes Paul 3 Hours to Bake a Cake