Comparative Advantage

The average worker at Sobeys South can make 10 desserts or 30 salads in one hour. The average worker at Sobeys North can make 30 desserts or 30 salads in one hour. There are 10 workers at Sobeys South and 10 workers at Sobeys North.

1. Construct the PPFs for what each location can produce in one hour.

2. If Sobeys North and Sobeys South each use half of their workers to make desserts and half of their workers to make salads, how many desserts and salads will each produce? Mark these points on the PPFs. How many total goods will each store produce? Combine the goods produced by Sobeys North and Sobeys South, how many total goods are produced?

3. What is the opportunity cost for Sobeys South to make a dessert? For a salad?

4. What is the opportunity cost for Sobeys North to make a dessert? For a salad?

5. Who has the comparative advantage in desserts? In salads?

6. If each location specializes and trades, who should produce what?

7. If Sobeys North and Sobeys South specialize, how many goods will each company produce? What is the total number of goods produced?

8. What should the trade rate be?

9. Show on each graph a consumption point that is outside of the PPF and can be obtained by specializing and trading.

10. Compare the amount of goods consumed by customers after the two locations trade with the amount of goods available for customer consumption in question 2.