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30 January, 16:05

Nancy and Bill are auto mechanics. Nancy takes 4 hours to replace a clutch and 2 hours to replace a set of brakes. Bill takes 6 hours to replace a clutch and 2 hours to replace a set of brakes. State whether anyone has an absolute advantage at either task and, for each task, identify who has a comparative advantage.

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  1. 30 January, 16:27
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    Absolute Advantage : Someone can produce more output of a good/service with lower input. (Input = time here)

    Comparative Advantage : Someone can produce more of a good/service with lesser opportunity cost in terms of other good/service.

    Clutch Brakes Trade off ratios

    Nancy 4 2 1:2 / 0.5:1

    Bill 6 2 3:1 / 1:0.33

    * * Nancy & Bill are equally efficient with brakes, take equal time in that (2=2). Nancy is more efficient with clutch - takes lesser time than Bill (4<6).

    So - Nobody has Absolute Advantage in brakes, but Nancy has Absolute Advantage in clutch.

    * * Nancy is twice more productive in Brakes than Clutch (takes half time in brakes than clutch - 2,4). Bill is thrice more productive in Brakes than Clutch (takes 1/3rd time than clutch - 2,6).

    Nancy can replace brakes by sacrifising o. 5 of a clutch replacement, Bill can replace brakes by sacrifising lesser i. e 0.33 of a clutch replacement. Also - Nancy can replace Clutch by sacrifising 2 brakes replacement, Bill can replace clutch by sacrifising more i. e 3 brakes replacement)

    So, Bill has Comparative Advantage in Brakes, Nancy has comparative Advantage in Clutch.
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