Jessica can produce 2 boats in a day or 100 umbrellas in a day. Paul can produce 3 boats in a day or 120 umbrellas in a day. This means that for every boat that Jessica produces, her opportunity cost is 50 umbrellas. For every boat Paul produces, his opportunity cost is 40 umbrellas. What would you illustrates the idea of comparative advantage?

The option that illustrates comparative advantage is Paul is relatively better at producing boats because he gives up fewer umbrellas per boat.

A person has comparative advantage in production of a good or service if it produces the good at a lower opportunity cost when compared to other people.

A person has a lower opportunity cost if it gives up fewer of other goods to produce a good.  Paul has a comparative advantage in the production of boats. Jessica has a comparative advantage in the production of umbrellas.

Here are the options to this question:

A. Jessica produces fewer boats in a day than Paul, so she has comparative advantage in producing boats.

B. Paul is relatively better at producing boats because he gives up fewer umbrellas per boat.

C. Paul is better at producing boats because he can produce more boats in a day.

D. There is no comparative advantage in this case because Paul can produce more goods in a day.

E. Jessica produces fewer umbrellas in a day than Paul, so she has comparative advantage in producing boats.

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B. Paul is relatively better at producing boats because he gives up fewer umbrellas per boat.

Explanation:

Comparative advantage is a notion introduced by famous economist, David Ricardo. It argues that entities should produce the goods that they have a lower opportunity cost in producing as this would prove they are better at producing said goods because they are more efficient.

In this scenario, Paul most definitely has a comparative advantage over Jessica in the production of boats because he has a lower opportunity cost of 40 umbrellas when he does so. He is therefore more efficient at it than Jessica.

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