Comparative Advantage Activity Name______________________________ Terry and Casey are roommates in an apartment. You want to determine whether they will be better off by doing their own work (being self-sufficient), or specializing and trading with their roommate. In 1 day, Terry can complete 6 loads of laundry or prepare 12 meals. In 1 day, Casey can complete 2 loads of laundry or prepare 12 meals. 1. Definition of absolute advantage: 2. Who has the absolute advantage in laundry? ______________ 5. In cooking? ______________ 3. Definition of comparative advantage: 4. What is Terry's opportunity cost of doing 1 load of laundry? (= meals/laundry) _____ Casey's? _____ 5. Who has the comparative advantage in laundry? _________ How do you know? _________________ 6. What is Terry's opportunity cost of preparing 12 meals? (= laundry/meals) _____ Casey's? _______ 7. Who has the comparative advantage in cooking? ________ How do you know? ___________________ 8. Self-sufficiency: If you and you roommate were self-sufficient and split your day evenly between laundry and cooking, how many meals and clean loads would you jointly produce? (fill in table) Clean loads Meals 8. Self-sufficient Terry _____ _____ Casey _____ _____ Total _____ _____ 9. Specialize Terry _____ __0__ 9. Specialization: If you each spent the day doing the activity in which you have a comparative advantage, how much will you two produce? (fill in table) 10. When is total output of the apartment greater? Self-sufficient specialize 11. How can the roommates trade laundry for meals so you both benefit from specialization? Casey __0__ _____ (Compare what you have in 8 vs 9 and barter!) Total _____ _____ 11. After barter: *12. Terry is more capable than Casey. Does that mean he has nothing to gain from trading with his less capable roommate? Explain. *Most important idea to understand from this exercise! T