The following table shows the output per week of two people, Alice and Bob. They can either devote their time to making hats or making umbrellas. Which of the following statements is true?

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BlackTom AI · Accepted Answer

The question provides weekly output for Alice and Bob for two goods: hats and umbrellas. We need to compare both absolute and comparative advantages.
Option 1: 'Alice has an absolute advantage in making both products.' Absolute advantage means who can produce more of a good with the same resources. For hats, Bob produces 50 while Alice produces 40, so Bob has the absolute advantage in hats, not Alice. For umbrellas, Alice produces 10 while Bob produces 5, so Alice has the absolute advantage in umbrellas, not both. Therefore, this statement is incorrect.
Option 2: 'Bob has an absolute advantage in making both products.' As noted, Bob does have the absolute advantage in hats (50 vs 40), but in umbrellas Alice produces more (10 vs 5). Hence, Bob does not have an absolute advantage in both products, and this option is false.
Option 3: 'Alice has a comparative advantage in making hats and Bob in making umbrellas.' Comparative advantage is about lower opportunity cost. For Alice, the opportunity cost of 1 hat is 0.25 umbrellas (she could have made 10 umbrellas instead of 40 hats). For Bob, the opportunity cost of 1 hat is 0.1 umbrellas (he could have made 5 umbrellas instead of 50 hats). Since Bob’s cost in terms of umbrellas is lower than Alice’s, Bob has the comparative advantage in hats, not Alice. Similarly, for umbrellas, Alice’s cost is 4 hats per umbrella (she could have produced 40 hats instead of 10 umbrellas), while Bob’s cost is 10 hats per umbrella (he could have produced 50 hats instead of 5 umbrellas). Alice has the lower cost for umbrellas, not Bob. Therefore this option is false.
Option 4: 'Bob has a comparative advantage in making hats and Alice in making umbrellas.' This matches the opportunity-cost analysis: Bob’s lower cost in hats implies he has the comparative advantage in hats, and Alice’s lower cost in umbrellas implies she has the comparative advantage in umbrellas. Thus this statement is correct.

ECON 2002.01 AU2025 (21333) Final Exam- Requires Respondus LockDown Browser

The following table shows the output per week of two people, Alice and Bob. They can either devote their time to making hats or making umbrellas. Which of the following statements is true?

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