Question

Nancy and Bill are auto mechanics. Nancy takes 4 hours to replace a clutch and 2 hours to replace a set of brakes. Bill takes 6 hours to replace a clutch and 2 hours to replace a set of brakes. State whether anyone has an absolute advantage at either task and, for each task, identify who has a comparative advantage.

Answer 1

Answer:

Explanation:

Absolute Advantage : Someone can produce more output of a good/service with lower input.    (Input = time here)

Comparative Advantage : Someone can produce more of a good/service with lesser opportunity cost in terms of other good/service.      

                Clutch          Brakes       Trade off ratios

Nancy           4              2                   1:2 / 0.5:1

Bill                6               2                   3:1 / 1:0.33

** Nancy & Bill are equally efficient with brakes, take equal time in that (2=2). Nancy is more efficient with clutch - takes lesser time than Bill (4<6) .  

So - Nobody has Absolute Advantage in brakes, but Nancy has Absolute Advantage in clutch.

** Nancy is twice more productive in Brakes than Clutch (takes half time in brakes than clutch - 2,4). Bill is thrice more productive in Brakes than Clutch (takes 1/3rd time than clutch - 2,6).

Nancy can replace brakes by sacrifising o.5 of a clutch replacement, Bill can replace brakes by sacrifising lesser i.e 0.33 of a clutch replacement. Also -  Nancy can replace Clutch by sacrifising 2 brakes replacement, Bill can replace clutch by sacrifising more i.e 3 brakes replacement)

So, Bill has Comparative Advantage in Brakes, Nancy has comparative Advantage in Clutch.