Refer to Figure 4. Assume that Cliff and Paul were both producing wheat and corn, and each were dividing their time equally between the two. Then they decide to specialize in the product they have a comparative advantage in. As a result, total production of corn would
a. increase by 1 bushel.
b. increase by 3 bushels.
c. increase by 5 bushels.
d. decrease by 2 bushels.
P.S. - Figure 4 represents the production of wheat and corn of two individuals in a graph. Paul can either produce 8 wheat (0,8) or 10 corn (10,0). Cliff can either produce 6 (0,6) wheat or 4 corn (4,0).
The answer to the question is "b", but I don't understand how to get this answer. Please help me understand.
If Paul spends all of his time on W he produces 8 bushels, if all his time on C he produces 10. Since, as given, he spends equal amounts of time, he must be producing 4 W and 5 C. For a total of 9 bushels.
Repeat for Cliff. He must initiall be producing 3 W and 2 C, for a total of 5 bushels. Between the two, they must be producing 7 W and 7 C.
Now specialize. Paul now produces only C and produces 10 bushels. Cliff only produces W and produces 6, for a total of 16 bushels
Corn went from 7 to 10, an increase of 3 bushels (so b is the correct answer)
(BTW, Wheat went from 7 to 6, a decrease of 1)
To determine the answer, we need to analyze the comparative advantage of each individual in producing corn and wheat.
Comparative advantage refers to the ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than others. In this case, we need to compare the opportunity cost of producing corn and wheat for both Cliff and Paul.
For Paul:
- If Paul produces 1 additional bushel of corn, he gives up producing 1/10 = 0.1 wheat since he can produce 10 corn with the same effort.
- If Paul produces 1 additional bushel of wheat, he gives up producing 1/8 = 0.125 corn since he can produce 8 wheat with the same effort.
For Cliff:
- If Cliff produces 1 additional bushel of corn, he gives up producing 1/4 = 0.25 wheat since he can produce 4 corn with the same effort.
- If Cliff produces 1 additional bushel of wheat, he gives up producing 1/6 = 0.1667 corn since he can produce 6 wheat with the same effort.
Comparing the opportunity costs, we can see that:
- Paul has a lower opportunity cost for producing corn (0.1 wheat) compared to Cliff's opportunity cost of 0.25 wheat.
- Cliff has a lower opportunity cost for producing wheat (0.1667 corn) compared to Paul's opportunity cost of 0.125 corn.
Based on comparative advantage principles, Paul should specialize in producing corn since his opportunity cost for corn is lower than Cliff's, and Cliff should specialize in producing wheat since his opportunity cost for wheat is lower than Paul's.
Therefore, by specializing in their respective comparative advantage, total production of corn would increase. Paul's corn production would increase by 1 bushel (from 10 to 11), and Cliff's corn production would increase by 2 bushels (from 4 to 6).
So, the total production of corn would increase by 1 + 2 = 3 bushels.
Hence, the correct answer is b. increase by 3 bushels.
To understand why the total production of corn would increase by 3 bushels when both Cliff and Paul specialize in the product they have a comparative advantage in, you need to compare their production possibilities.
In the given scenario, Paul can produce either 8 units of wheat or 10 units of corn. Cliff, on the other hand, can produce either 6 units of wheat or 4 units of corn.
Comparative advantage refers to the ability of an individual or country to produce a good or service at a lower opportunity cost than others. To determine who has a comparative advantage in each product, we need to compare the opportunity cost of producing each good for both individuals.
For Paul, the opportunity cost of producing 1 unit of wheat is 10/8 = 1.25 units of corn (10 corn / 8 wheat).
For Cliff, the opportunity cost of producing 1 unit of wheat is 4/6 = 0.67 units of corn (4 corn / 6 wheat).
From this comparison, we can see that Cliff has a lower opportunity cost for producing wheat compared to Paul, while Paul has a lower opportunity cost for producing corn compared to Cliff.
In order to maximize total production, each individual should specialize in the product in which they have a comparative advantage. Therefore, Paul should specialize in producing corn, and Cliff should specialize in producing wheat.
By specializing, Paul would now produce all 10 units of corn, increasing the total corn production by 10 - 4 = 6 bushels. Cliff, specializing in wheat, would produce all 6 units of wheat, which is the same as before.
Hence, total production of corn would increase by 6 bushels.
However, the given answer choices are not aligned with this logic. Given the provided information, it is not possible to accurately determine that the total production of corn would increase by exactly 3 bushels. The correct answer in this case would be "Cannot be determined based on the given information."