Question

Use the following scenario to answer the following questions: Natasha can produce either 5,000 pounds of cheese or 20 houses per year. Jameson can produce either 5,000 pounds of cheese or 10 houses per year. Natasha has a comparative advantage in the production of ________, and Jameson has a comparative advantage in the production of ________. a.houses; cheese b.cheese; houses c.both goods; cheese d.both goods; houses

Answer 1

If Natasha can produce either 5,000 pounds of cheese or 20 houses per year and Jameson can produce either 5,000 pounds of cheese or 10 houses per year then,

• Natasha has a comparative advantage in the production of cheese.
• Jameson has a comparative advantage in the production of cheese.

What is comparative advantage?

The ability of an economy to produce a specific good or service at a lower opportunity cost than its trading counterparts is known as comparative advantage.

The example of comparative advantage is-

• For instance, if a nation excels in producing both cheese and chocolate, they can choose to allocate the appropriate amount of labour to each product.
• This nation has a comparative advantage in producing chocolate if it takes one hour of labour to make 10 units of cheese and one hour of labour to produce 20 units of chocolate.

The importance of comparative advantage are-

• Ability to create a good or service for a lower opportunity cost is a benefit of comparative advantage.
• Companies with a comparative advantage are able to sell their products and services for less than their rivals do, resulting in higher profit margins and stronger sales margins.

To know more about lower opportunity cost, here

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