54 PART ONE INTRODUCTION of producing a good—that is, who has to give up less of other goods to produce it—is said to have a comparative advantage in producing that good. In our exam-ple, the farmer has a lower opportunity cost of producing potatoes than the rancher (1/2 pound versus 8 pounds of meat). The rancher has a lower opportu-nity cost of producing meat than the farmer (1/8 pound versus 2 pounds of pota-toes). Thus, the farmer has a comparative advantage in growing potatoes, and the rancher has a comparative advantage in producing meat. Notice that it would be impossible for the same person to have a comparative advantage in both goods. Because the opportunity cost of one good is the inverse of the opportunity cost of the other, if a person’s opportunity cost of one good is relatively high, his opportunity cost of the other good must be relatively low. Com-parative advantage reflects the relative opportunity cost. Unless two people have exactly the same opportunity cost, one person will have a comparative advantage
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.