Absolute and Comparative Advantage

Arjun's factory can produce 50 cars and 25 tools.  Zoe's workshop can produce 20 cars and 15 tools.  What is the opportunity cost of producing a car in Arjun's factory?

• .5 tools

• .5 cars

• .75 cars

• 1.3 tools

Answer explanation

To find the opportunity cost of producing a car in the U.S., divide the tools that could be produced by the cars. The U.S. can produce 25 tools for 50 cars, so the cost of 1 car is 25 tools / 50 cars = 0.5 tools.

Comparative advantages show:

• outcomes without trading

• who can make more items

• competition within countries

• who should produce what item at the lowest cost

Answer explanation

Comparative advantages indicate which producer can create a good at the lowest opportunity cost, guiding decisions on what items should be produced to maximize efficiency and benefit from trade.

Between Anika and Michael, who has the absolute advantage in producing more handmade crafts in a day?

• absolute advantage

• comparative advantage

Answer explanation

Absolute advantage refers to the ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group. It shows who can produce the most items.

Joy bakes 2 cakes and 1 pie. Susie bakes 3 cakes and 2 pies. Who has the absolute advantage for cakes?

• Joy

• Susie

Answer explanation

Susie gives 3 haircuts compared to Joy's 2. Since Susie can produce more haircuts in the same time frame, she has the absolute advantage in haircuts.

Ana takes 30 minutes to wash the dishes and one hour to vacuum the house. Her husband, Joe, takes 15 minutes to wash the dishes and 45 minutes to vacuum. Who has the absolute advantage for vacuuming?

• Ana

• Joe

Answer explanation

Joe has the absolute advantage in vacuuming because he takes only 45 minutes compared to Ana's 60 minutes. The person who can perform a task in less time has the absolute advantage.

Good and services produced at home and sold in other countries

• Imports

• Exports

• Specialization

• Globalization

Answer explanation

Exports refer to goods and services produced domestically and sold to other countries. In contrast, imports are goods brought into a country from abroad. Therefore, the correct answer is exports.

Grace and Rohan are both skilled in crafting handmade jewelry. Grace can create a necklace in 2 hours, while Rohan takes 3 hours for the same task. However, Grace takes 5 hours to make a bracelet, whereas Rohan can make it in 4 hours. The ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity is known as

• absolute advantage

• specialty

• production

• comparative advantage

Answer explanation

The correct choice is 'comparative advantage' because it refers to the ability to produce a good or service at a lower opportunity cost than another, allowing for more efficient economic activity compared to absolute advantage.

The theory of specializing in what we can do fastest and cheapest is called

• competition

• absolute advantage

• specialization

• comparative advantage

Answer explanation

The theory of absolute advantage refers to the ability of a party to produce a good more efficiently than another. It emphasizes producing what can be done fastest and cheapest, distinguishing it from comparative advantage.

Anika's bakery focuses on developing only certain skills or producing only certain goods/services to improve efficiency and quality.

• Imports

• Exports

• Specialization

• Globalization

Answer explanation

Specialization refers to focusing on developing specific skills or producing particular goods/services, enhancing efficiency and productivity in those areas.

True or False: It is better for Scarlett and Kai to specialize in their respective skills and conduct trades given comparative advantage data.

• True

• False

Answer explanation

True. Countries benefit from specializing in goods where they have a comparative advantage, leading to more efficient production and increased overall trade benefits.