Economics: Comperative Advantage
posted by Anonymous on .
Refer to Figure 4. Assume that Cliff and Paul were both producing wheat and corn, and each were dividing their time equally between the two. Then they decide to specialize in the product they have a comparative advantage in. As a result, total production of corn would
a. increase by 1 bushel.
b. increase by 3 bushels.
c. increase by 5 bushels.
d. decrease by 2 bushels.
P.S. - Figure 4 represents the production of wheat and corn of two individuals in a graph. Paul can either produce 8 wheat (0,8) or 10 corn (10,0). Cliff can either produce 6 (0,6) wheat or 4 corn (4,0).
The answer to the question is "b", but I don't understand how to get this answer. Please help me understand.
If Paul spends all of his time on W he produces 8 bushels, if all his time on C he produces 10. Since, as given, he spends equal amounts of time, he must be producing 4 W and 5 C. For a total of 9 bushels.
Repeat for Cliff. He must initiall be producing 3 W and 2 C, for a total of 5 bushels. Between the two, they must be producing 7 W and 7 C.
Now specialize. Paul now produces only C and produces 10 bushels. Cliff only produces W and produces 6, for a total of 16 bushels
Corn went from 7 to 10, an increase of 3 bushels (so b is the correct answer)
(BTW, Wheat went from 7 to 6, a decrease of 1)
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