Economic Concepts Essay Example | Topics and Well Written Essays - 500 words

Economic Concepts - Essay Example e) Michelle seems to be much more efficient than James at utilizing the same space and resources for the purpose of both raising chickens and growing potatoes. Perhaps Michelle is a much more experienced farmer than James or perhaps the soil in Michelle’s farm is much more fertile. Regardless Michelle has the absolute advantage in both the chicken and potato production compared to James. f) Since Michelle can produce potatoes at a ratio of 4 pounds of potatoes per chicken versus James ratio of 2 pounds of potatoes per chicken, so to Michelle’s the potato crop is more valuable compared to her chicken production. Michelle holds the comparative advantage in the production of potatoes. g) Since James can only produce 80 pounds of potatoes year, but yet he is able to produce 40 chickens which are more valuable than the 80 pounds of potatoes he can produce in his farm; James holds the comparative advantage in the production of chickens. h) If both James and Michelle were to s pecialize in the area where they both hold a comparative advantage they would both be better off. Since based the exchange rate is 2.5 pounds of potatoes for each chicken Michelle’s 200 pounds potatoes are worth 80 chickens versus her capability of producing 50 chickens. This represents a 60% increase in her overall production. In the case of James 40 chickens are worth 100 pounds of potatoes versus his farm production capacity of capacity of 80 pounds of potatoes.