One way to answer the question about the cost of producing potatoes is
to compare the imputs required by the two producers. Economists use the term absolute
advantage when comparing the productivity of one person, firm, or nation to
that of another. The producer that requires a smaller quantity of imputes to
produce a good is said to have an absolute advantage in producing that good.
In our example, time is the only imputes so we can determine absolute advantage by looking at how much time each type of production takes. The
rancher has an absolute advantage both in producing meat and in producing
potatoes because she requires less time than the farmer to produce a unit of
either good. The rancher needs to imput only 20 minutes to produce an ounce of
meat whereas the farmer needs 60 minutes. Similarly, the rancher needs only 10
minutes produce an ounce of potatoes, whereas the farmer needs 15 minutes.
Based on this information we can conclude that the rancher has the lower cost
of producing potatoes, if we measure cost by the quantity of imputes.
Comments
Post a Comment