Question

Stan’s Sporting Goods is a competitor that can manufacture seven soccer balls out of a possible ten, if it makes one soccer net. Which statement correctly compares the two businesses?

Sabrina’s Soccer has a comparative advantage over Stan’s Sporting Goods because Sabrina’s Soccer has a lower opportunity cost.
Stan’s Sporting Goods has a comparative advantage over Sabrina’s Soccer because Stan’s Sporting Goods has a lower opportunity cost.
Sabrina’s Soccer has an absolute advantage over Stan’s Sporting Goods because Sabrina’s Soccer has a lower production cost.
Stan’s Sporting Goods has an absolute advantage over Sabrina’s Soccer because Stan’s Sporting Goods has a lower production cost.

Answer 1

Choose the first statement.

Reason: If Sabrina can make 10 soccer balls by giving up 1 net, her opportunity cost of 1 ball = 1/10 net (0.10). Stan’s opportunity cost of 1 ball = 1/7 net (≈0.143). Sabrina’s opportunity cost is lower, so she has the comparative advantage in soccer balls. (She also has the absolute advantage in balls since 10 > 7.)