2. Gomer can make either 200 bushels of corn (C) or 200 bushels of strawberries (S) every six months. Goober can make only 100 bushels of corn (C) or 50 bushels of strawberries (S) every six months.
A. Draw their corresponding production possibilities curves.
B. What is Gomer’s opportunity cost of making one bushel of corn?
C. What is Gomer’s opportunity cost of making one bushel of strawberries?
D. What is Goober’s opportunity cost of making one bushel of corn?
E. What is Goober’s opportunity cost of making one bushel of strawberries?
F. Who has a comparative advantage in making corn?
G. Who has a comparative advantage in making strawberries?
Answers
Answer:
Explanation:
(a) The table tells us that Gomer can produce 200 bushels of corn, and zero strawberries or zero corn and 200 bushels of strawberries. Goober can produce 100 bushels of corn and zero strawberries or zero corn and 50 strawberries.
(b) one bushel of strawberries.
(c) 1 bushel of corn.
(d) ½ bushel of strawberries.
(e)2 bushels of corn.
(f) Goober.
(g) Gomer.
Gomer appears“better” at both corn and strawberry production – he can produce a larger quantity of either good, relative to Goober. But the notion of comparative advantage does not simply focus on total output. It focuses on the opportunity cost of producing a particular output. Gomer and Goober have different costs of producing corn and strawberries. We’ve just seen that Goober is more efficient (has a comparative advantage) at producing corn compared to Gomer. Remember that all questions regarding efficiency (and therefore, comparative advantage) require us to look not only at total benefit or output, but at the sacrifices or opportunity costs that an individual must incur to produce that benefit or output. (h) Both Gomer and Goober would gain with any terms of trade in the following range: 1 bushel of strawberries being exchange for more than 1 bushel of corn but less than 2 bushel of corn.