Table 2-7

Table 2-7 shows the output per month of two people, Fred and Barney. They can either devote their time to making pogo sticks or making unicycles.
-Refer to Table 2-7.Which of the following statements is true?
A)Fred has a comparative advantage in making both products.
B)Barney has a comparative advantage in making both products.
C)Barney has a comparative advantage in making pogo sticks and Fred in making unicycles.
D)Barney has a comparative advantage in making unicycles and Fred in making pogo sticks.

Question

Table 2-7
  
Table 2-7 shows the output per month of two people, Fred and Barney. They can either devote their time to making pogo sticks or making unicycles.
-Refer to Table 2-7.Which of the following statements is true?
A)Fred has a comparative advantage in making both products. 
B)Barney has a comparative advantage in making both products. 
C)Barney has a comparative advantage in making pogo sticks and Fred in making unicycles. 
D)Barney has a comparative advantage in making unicycles and Fred in making pogo sticks.

Quizplus · Accepted Answer

To determine comparative advantage, we compare the opportunity cost of producing one product over the other. The opportunity cost for 1 unicycle for Fred is 5 pogo sticks, while for Barney it is 2 pogo sticks. Therefore, Barney has a lower opportunity cost of producing unicycles, meaning he has a comparative advantage in producing unicycles. Similarly, the opportunity cost for 1 pogo stick for Barney is 0.5 unicycles, while for Fred it is 0.67 unicycles. Therefore, Fred has a lower opportunity cost of producing pogo sticks, meaning he has a comparative advantage in producing pogo sticks. Thus, choice D is correct.

Table 2-7 Table 2-7 Shows the Output Per Month of Two People