Question

Comparative and absolute advantage

Eric and Ginny are farmers. Each one owns a 16-acre plot of land. The following table shows the amount of corn and rye each farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing corn or rye or to produce corn on some of the land and rye on the rest.

	Corn	Rye
	(Bushels per acre)	(Bushels per acre)
Eric	12	3
Ginny	10	5

On the following graph, use the blue line (circle symbol) to plot Eric's production possibilities frontier (PPF), and use the purple line (diamond symbol) to plot Ginny's PPF.

Eric's PPFGinny's PPF0801602403204004805606407208001601441281129680644832160RYE (Bushels)CORN (Bushels)240, 16Y-Intercept: 32X-Intercept: NoneSlope: 0

has an absolute advantage in the production of corn, and has an absolute advantage in the production of rye.

Eric's opportunity cost of producing 1 bushel of rye isbushels of corn, whereas Ginny's opportunity cost of producing 1 bushel of rye isbushels of corn. Because Eric has a opportunity cost of producing rye than Ginny, has a comparative advantage in the production of rye, and has a comparative advantage in the production of corn.

Answer 1

The following graph shows the PPF of both -

Absolute advantage occurs when someone produces more units of a good than other. As you can see Eric can produce 12 and Ginny can produce 10 bushels of corn thus Eric has absolute advantage in production of corn.

And as Ginny can produce more rye than Eric thus Ginny has absolute advantage in production of rye.

Eric's opportunity cost of corn = 3/12 = 0.25

Ginny's opportunity cost of corn = 5/10 = 0.5

On the other hand,

Eric's opportunity cost of rye = 12/3 = 4

Ginny's opportunity cost of rye = 10/5 = 2

Because Eric has a LARGER opportunity cost of producing rye than Ginny, then GINNY has a comparative advantage in the production of rye, and ERIC has a comparative advantage in the production of corn.