Given the above production possibility curve:
- Kate has an absolute advantage in neither goods
- Sarah has the absolute advantage in both goods.
This is the ability of one person or group to do a certain economic activity more effectively than another person or group.
<h3>How do we arrive at the above answer?</h3>From the PPC curves of both manufacturers, the attached schedule of production which shows how they use 8 hours of labor indicates that:
Kate produces 4 loaves of bread or 8 pieces of cake; while
Sarah produces 12 loaves or 9 pieces of cake.
Given the definition of Absolute Advantage above, it is thus correct to state that:
- Kate has an absolute advantage in neither goods: while
- Sarah has the absolute advantage in both goods.
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