Al and Bill Are the Only Workers in a Small

question 6

Multiple Choice

Al and Bill are the only workers in a small factory that makes geegaws and doodads.Al can make 7 geegaws per hour or 14 doodads per hour.Bill can make 4 geegaws per hour or 24 doodads per hour.Assuming that neither of them finds one task more odious than the other,

• A)Bill has a comparative advantage in producing geegaws and Al has a comparative advantage in producing doodads.
• B)Bill has a comparative advantage in producing both geegaws and doodads.
• C)Al has a comparative advantage in producing both geegaws and doodads.
• D)Al has a comparative advantage in producing geegaws and Bill has a comparative advantage in producing doodads.
• E)both have a comparative advantage in producing doodads.

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Definitions:

Income Elasticity

A measure of how much the demand for a good or service changes in response to a change in consumers' income levels.

Normal Good

A good for which demand increases as consumer income rises, and decreases as consumer income falls.

Inferior Good

A type of good for which demand decreases as the income of the consumer increases, as opposed to a normal good where demand increases with income.

Linear Demand Curve

A demand curve that shows a straight-line relationship between price and quantity demanded, suggesting a constant rate of change.