EC140OC – Quiz 1 Bonus Question - Answer
Figure 3-4
21. Refer to Figure 3-4. What does each of the two producers have a comparative
advantage in:
a. Ben has a comparative advantage in beer, and Jerry has a comparative advantage in
wine.
b. Ben has a comparative advantage in wine, and Jerry has a comparative
advantage in beer.√
c. Ben has a comparative advantage in neither good, and Jerry has a comparative
advantage in wine.
d. Ben has a comparative advantage in both goods, and Jerry has a comparative
advantage in neither.
Comparative Advantage
The correct answer is b) Ben has a comparative advantage in wine, and Jerry has a
comparative advantage in beer.
The reason Ben and Jerry have a comparative advantage in wine and beer respectively is as
follows:
First, to find out who has comparative advantage of wine we need to look at the slope of the
production possibilities frontier for both Ben and Jerry.
(Recall the slope of the production possibilities frontier represents the opportunity cost of
producing one more unit of a good on the x-axis)
The slope of Ben’s production possibilities frontier is equal to 8/4 = 2 and so he gives up
2 beers to make 1 unit of wine.
The slope of Jerry’s production possibilities frontier is equal to 9/3 = 3 and so he gives up
3 beers to make 1 unit of wine.
Because Ben gives up less beer to make 1 unit of wine (2 units versus 3 units), Ben has a
lower opportunity cost of producing wine, and thus has a comparative advantage in wine.
Second to find out who has comparative advantage of beer we need to look at the inverse of
the slope of the production possibilities frontier for both Ben and Jerry.
(Recall the slope of the production possibilities frontier represents the opportunity cost of
producing one more unit of a good on the x-axis and the inverse of the slope represents the
opportunity cost of producing one more until of the good on the y-axis)
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EC140OC – Quiz 1 Bonus Question - Answer
The inverse of the slope of Ben’s production possibilities frontier is equal to 4/8 = 1/2 and
so he gives up 1/2 unit of wine to make 1 unit of beer. (1/2= 0.5)
The inverse of the slope of Jerry’s production possibilities frontier is equal to 3/9 = 1/3 and
so he gives up 1/3 unit of wine to make 1 unit of beer. (1/3 = 0.3)
Because Jerry gives up less wine to make 1 unit of beer, (0.3 units versus 0.5 units) Jerry
has a lower opportunity cost of producing beer, and thus has a comparative advantage in
beer.
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