If fred and ginger both specialize in the good in which they have a comparative advantage, what would the total production be?
The correct answer and explanation is:
To answer this question, we first need to understand the concept of comparative advantage. Comparative advantage occurs when a person, country, or business can produce a good at a lower opportunity cost than others. If Fred and Ginger each specialize in the good in which they have a comparative advantage, their total production will be higher than if they each tried to produce both goods themselves.
Let’s break it down step by step:
- Comparative Advantage: Fred and Ginger will each produce the good in which they have the lowest opportunity cost. For example, if Fred has a lower opportunity cost in producing good A and Ginger has a lower opportunity cost in producing good B, Fred will specialize in good A and Ginger in good B.
- Specialization and Trade: By specializing, both Fred and Ginger can focus on what they are best at, thereby increasing total production. After specializing, they can trade with each other to get the goods they don’t produce.
- Increased Efficiency: Specialization leads to more efficient production. Fred can produce more of good A, and Ginger can produce more of good B. When each person focuses on what they do best, they make the most out of their resources, leading to an overall increase in total production compared to if they tried to produce both goods individually.
- Total Production: The total production will be the sum of the quantities produced by Fred and Ginger in their respective goods. Since they are focusing on what they do best, the total output will exceed what they could have achieved by producing both goods independently. This is the fundamental benefit of specialization based on comparative advantage.
In conclusion, by specializing in the good for which they have a comparative advantage, Fred and Ginger will increase total production, benefiting from the efficiencies of specialization and trade.