A. Wanda: The opportunity cost of producing 1 basket is 1/5 of a hat. The opportunity cost for producing 1 hat is 5 baskets.

B. Carl: The opportunity cost for producing 1 basket is 3/5 of a hat. The opportunity cost for producing 1 hat is 5/3 baskets.

C. In this case, Wanda has the comparative advantage in producing baskets because she only gives up 1/5 of a hat produce 1 basket while Carl must give up 3/5 hat to produce 1 basket. Carl, however, has the comparative advantage in hat production because he only gives up 5/3 baskets to produce 1 hat which is less than the 5 baskets that Wanda needs to give up to produce 1 hat.

Question Two The production possibilities frontiers above show the production possibilities for two goods produced in the Macro and Micro Islands using the same resources. From these curves, we can determine that

the Macro Islands have an comparative advantage in producing sun glasses.

Question Three

Refer to the graph above of a country’s production possibilities curve. If three automobile tires are currently being produced, the opportunity cost of producing the fourth automobile tire would be

35 radio cars