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 both goods because she can produce more of both goods in an hour than can Joe.
B) Beth should produce sandwiches and Joe should produce pizza.
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 is determined by who has the lower opportunity cost in producing a good. Joe's opportunity cost of making a sandwich is 0.5 pizzas (10 pizzas / 20 sandwiches), while Beth's is 0.75 pizzas (27 pizzas / 36 sandwiches). Therefore, Joe has a comparative advantage in making sandwiches. For pizzas, Joe's opportunity cost is 2 sandwiches (20 sandwiches / 10 pizzas), while Beth's is 1.33 sandwiches (36 sandwiches / 27 pizzas), giving Beth the comparative advantage in pizza production.

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