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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Tina can produce any of the following combinations of goods X and Y: (a) 100 X and 0 Y, (b) 50 X and 25 Y, and (c) 0 X and 50 Y. David can produce any of the following combinations of X and Y: (a) 50 X and 0 Y, (b) 25 X and 40 Y, and (c) 0 X and 80 Y. Who has the comparative advantage in the production of good X? Of good Y? Explain your answer.

To determine

Explain who has the comparative advantage in the production of good Y and good X.

Explanation

Table 1 shows Ms. T’s possible combination of good X and good Y below:

Table 1

CombinationGood XGood Y
11000
25025
3050

Table 1 reveals that when a person moving from combination from one point other point, he  gives up 50 units of X to gain 25 units Y.  In other words, the person gives up 25 units of Y to gain 50units of X.

Table 2 shows Mr. D’s possible combination of good X and good Y.

Table 2

CombinationGood XGood Y
1500
22540
3080

Table 2 reveals that when a person moving from combination from one point other point, he gives up 25 units of X to gain 40 units Y.  In other words, the person gives up 40 units of Y to gain 25 units of X.

The opportunity cost of producing good X and good Y for both T and D is calculated as follows:

The general formula for calculating the opportunity cost is given as follows:

Opportunity Cost=Given up outputGained output (1)

Substitute the respective values in Equation (1) to calculate the opportunity cost of producing good Y for Ms. T.

Opportunity CostGood Y=5025=2

The opportunity cost of producing good Y for Ms

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