Ryan and Asha produce water skis and wakeboards. The first table shows Ryan's production possibilities and the second table shows Asha's production possibilities. Each week, Ryan produces 5 wakeboard and 40 water skis and Asha produces 10 wakeboard and 5 water skis. Who has a comparative advantage in producing wakeboards and water skis?
Ryan Wakeboards per week
25, 20, 15, 10, 5, 0
Water skis (per week)
0, 10, 20, 30, 40, 50
20, 10, 0
Water Skis 0, 5, 10
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To find comparative advantage, what you need to do is determine the opportunity cost for each person and each product. Opportunity cost is the thing that has to be given up to get some other thing. Comparative advantage occurs when one country (or person, in this case) has a lower opportunity cost for making a given product.
To find our opportunity costs, we have to use the numbers you have given us. We see that Ryan has to give up 10 water skis (goes from 10 to 0) to make 5 more wakeboards (25 instead of 20). That means that he gives up 2 water skis to get a wake board and his opportunity cost for one wakeboard is 2 water skis. We can take the reciprocal to find his opportunity cost for water skis. That means his opportunity cost for making one water ski is ½ of a wakeboard.
Now we have to see what Asha’s opportunity costs are. In order to get 5 water skis (go from 0 to 5), she has to give up 10 wakeboards (go from 20 to 10). That means she has to give up 2 wakeboards to get 1 water ski and her opportunity cost for a water ski is 2 wakeboards. Using the reciprocal, we see that her opportunity cost for a wakeboard is ½ water skis.
So now we can see who has a comparative advantage in what. Ryan’s opportunity cost for making water skis is lower than Asha’s and Asha’s opportunity cost for making wakeboards is lower than Ryan’s. Therefore, Ryan has a comparative advantage in water skis and Asha has a comparative advantage in wakeboards.
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