Understanding Comparative Advantage

What does comparative advantage refer to?

• The ability to produce a good at a lower opportunity cost than others.

• The ability to consume more goods than others.

• The ability to produce more of a good than others with the same amount of resources.

• The ability to produce a good at a higher price than others.

What is the opportunity cost of producing one plate for Charlie?

• 1/3 of a cup

• 10 plates

• 3 cups

• 1 cup

Who has the comparative advantage in producing cups?

• Charlie

• Patty

• Neither has an advantage

• Both have the same advantage

If Patty specializes in what she has a comparative advantage in, what will she produce?

• Cups

• Plates

• Neither cups nor plates

• Both cups and plates equally

What is the opportunity cost for Patty to produce one cup?

• 1 plate

• 1/3 of a plate

• 3 plates

• 10 cups

Why might Charlie and Patty decide to trade?

• To create a monopoly in the dinnerware market

• To increase their financial gain only

• To achieve outcomes beyond their individual production possibilities

• Because they have a surplus of goods

What does the Production Possibility Frontier (PPF) represent?

• The total amount of goods a country can consume

• A fixed level of production that cannot be exceeded

• A trade-off between two options where producing more of one good requires producing less of another

• The maximum output that can be produced with unlimited resources

What happens if Charlie and Patty trade at a ratio of 1 cup for 1 plate?

• Patty will gain more cups than she trades in plates

• Charlie will lose cups without gaining plates

• Both will end up with a combination of goods they couldn't achieve alone

• The trade will not affect their production possibilities