Suppose that opportunity costs are constant and that Fred can either bake a maximum of six pies or three cakes in a day. Ethel can produce a maximum of eight pies or two cakes in a day. Fred has an comparative advantage in the production of
A) cakes.
B) pies.
C) both cakes and pies.
D) neither cakes nor pies.

Question

Quizplus · Accepted Answer

Fred has a comparative advantage in cakes because he gives up fewer pies to make a cake compared to Ethel. Fred sacrifices 2 pies per cake (6 pies/3 cakes), while Ethel sacrifices 4 pies per cake (8 pies/2 cakes). Comparative advantage is determined by who has the lower opportunity cost in production.

Suppose That Opportunity Costs Are Constant and That Fred Can