Consider two individuals, Celia and Sondra, who produce bracelets and pendants. Celia's and Sondra's hourly productivity are as follows:
Bracelets /hour Pendants /hour
Celia 4 1
Sondra 10 2
Who has the absolute advantage or comparative advantage in the production of bracelets or pendants?
Sondra has the absolute advantage in producing both goods, but Sondra only has comparative advantage in the production of bracelets, not pendants. Celia has a comparative advantage in the production of pendants. Sondra's opportunity cost of a bracelet is 1/5 of a pendant, and her opportunity cost of a pendant is 5 bracelets. Celia's opportunity cost of a bracelet is 1/4 of a pendant, and her opportunity cost of a pendant is 4 bracelets.
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