Answered: Alice and Bob each produce haircuts and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Alice and Bob each produce haircuts and landscaping services. Alice can provide 4 haircuts in one hour. Bob can provide 2 haircuts in one hour. It takes Alice 2 hours to landscape an acre of property. It takes Bob 1 hour to landscape an acre of property. Assume Alice and Bob both work a standard 8 hour day. Which of the following must be true? (check all that apply)

Alice has the absolute advantage in haircuts.

Bob has the absolute advantage in landscaping.

Bob has the comparative advantage in landscaping.

Alice has the comparative advantage in haircuts.

Definition Video Definition Ability of a country to produce more output with a given level of input or to produce the same level of output with a lower level of input as compared to the other countries. For example, if Country A produces 200 units with the help of 10 units of labor, and Country B produces 300 units with 10 units of labor, Country A has an absolute advantage in the production of the good. Video

Expert Solution

Step 1: Determine the given information:

In one hour, Alice can provide 4 haircuts and Bob can provide 2 haircuts.

"Alice takes 2 hours to landscape an acre of property and Bob takes 1 hour to landscape an acre of property".

Absolute advantage: A person has an absolute advantage in the production of a good or service if he can produce more of it with the same amount of resources or can produce the same amount with fewer resources compared to another person.

Comparative advantage: Comparative advantage arises when a person can produce a good or service at a lower opportunity cost than another person.

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