Question
Comparative advantage is the idea that there gains to be had from specialization into tasks. But what should you specialize in? When you compare yourself
Comparative advantage is the idea that there gains to be had from specialization into tasks. But what should you specialize in? When you compare yourself to others, what can you do somehow better than anyone else? In other words, you should specialize in the task where your opportunity cost is lower than any other thing you do. Let's illustrate this with an example
Lebos and Slavia require both corn and barley. Their respective lands, however, have different capabilities in terms of growing these foods. Suppose Lebos can produce at a maximum of either 4 units of corn or 4 units of barley on every acre of land. Slavia can produce at a maximum of either 3 units of corn or 9 units of barley on every acre of land.
For comparative advantage setting of choosingwhat to produce, the lecture gave you advice on calculating opportunity cost when assuming a linear production technology. You will use that to answer the sequence of questions about comparative advantage.
Question1: Assuming a linear technology for producing either corn or barley, how many units of corn must be given up to have one unit of barley in Lebos (i.e. what is Lebos's opportunity cost of producing barley)?
Question 2:Assuming a linear technology for producing either corn or barley, how many units of corn must be given up to grow one unit of barley in Slavia (i.e. what is Slavia's opportunity cost of producing barley)?
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