Multiple Choice
If Joe and Carla plan to specialize and trade, what should Carla produce?
2. Introductory Economic Models
PPF - Comparative Advantage and Trade
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If Joe and Carla plan to specialize and trade, what should Joe produce?
A
Only Scrambled Eggs
B
Only Fresh Squeezed
C
6 Eggs and 4 OJ
D
2 Eggs and 4 OJ
Verified step by step guidance1
Identify the production possibilities for both Joe and Carla by examining their respective graphs. Each graph shows the trade-off between producing Fresh Squeezed Orange Juice (OJ) and Scrambled Eggs.
Determine the opportunity cost for Joe and Carla. The opportunity cost is the amount of one good that must be given up to produce more of the other good. This can be found by calculating the slope of the production possibility frontier (PPF) for each individual.
For Joe, calculate the opportunity cost of producing one more Scrambled Egg in terms of Fresh Squeezed OJ. Similarly, calculate the opportunity cost of producing one more Fresh Squeezed OJ in terms of Scrambled Eggs.
Repeat the same calculation for Carla to determine her opportunity costs for producing Scrambled Eggs and Fresh Squeezed OJ.
Compare the opportunity costs for Joe and Carla. The person with the lower opportunity cost for a good should specialize in producing that good. This is based on the principle of comparative advantage, which suggests that each person should specialize in the production of the good for which they have the lowest opportunity cost.
Related Practice
PPF - Comparative Advantage and Trade practice set
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