Question

Eric and Ginny are farmers. Each one owns a 20-acre plot of land. The following table shows the amount of alfalfa and barley each farmer can produce per year on a given acre. Each farmer chooses whether to devote all acres to producing alfalfa or barley or to produce alfalfa on some of the land and barley on the rest.

	Alfalfa	Barley
	(Bushels per acre)	(Bushels per acre)
Eric	30	10
Ginny	28	7

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 PPF01002003004005006007008009001000200180160140120100806040200BARLEY (Bushels)ALFALFA (Bushels)

  has an absolute advantage in the production of alfalfa, and   has an absolute advantage in the production of barley.

Eric's opportunity cost of producing 1 bushel of barley isbushels of alfalfa, whereas Ginny's opportunity cost of producing 1 bushel of barley is

bushels of alfalfa. Because Eric has a   opportunity cost of producing barley than Ginny,   has a comparative advantage in the production of barley, and   has a comparative advantage in the production of alfalfa.

Answer 1

Eric: Maximum production of Barley = 20 x 10 = 200 bushels

Maximum production of Alfalfa = 20 x 30 = 600 bushels

Ginny: Maximum production of Barley = 20 x 7 = 140 bushels

Maximum production of Alfalfa = 20 x 28 = 560 bushels

Absolute Advantage:

Absolute advantage is the ability of a country to produce a good or service at a lower per unit cost as compared to any other country that produces same good or service.

Eric has an absolute advantage in the production of Alfalfa.

Ginny has an absolute advantage in the production of Alfalfa.

No one has an absolute advantage in the production of Barley.

Comparative Advantage

A country has a comparative advantage in producing that good if the opportunity cost of producing that good is lower in that country as compared to another country.

Eric:

10 bushels of Barley = 30 bushels of Alfalfa

1 bushel of Barley = 30/10 = 3 bushels of Alfalfa

1 bushel of Alfalfa = 10/30 = 1/3 = 0.33 units of Barley

Opportunity cost of producing 1 bushel of Barley is 3 bushels of Alfalfa and 1 bushel of Alfalfa is 0.33 units of Barley.

Ginny:

7 bushels of Barley = 28 bushels of Alfalfa

1 bushel of Barley = 28/7 = 4 bushels of Alfalfa

1 bushel of Alfalfa = 7/28 = 1/4 = 0.25 units of Barley

Opportunity cost of producing 1 bushel of Barley is 4 bushels of Alfalfa and 1 bushel of Alfalfa is 0.25 units of Barley.

Eric has lower opportunity cost in the production of Barley than Ginny so, Eric has comparative advantage in the production of Barley.

Ginny has comparative advantage in the production of Alfalfa because of lower opportunity cost.