Example: Assume that you are a high-profile lawyer in your hometown. Your job as
ID: 1139200 • Letter: E
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Example: Assume that you are a high-profile lawyer in your hometown. Your job as a lawyer pays you an average of $200 an hour! You are also very good at fixing cars, a skil you learned from your father. You are so good that you can change engine oil in your car faster than the local mechanic. If it takes you about an hour to change your engins ol and it takes your lcal mechanie an hour and If it takes you about an hour to change your engine oil and it takes your local mechanic an hour and ifteen minutes to complete the task, then: Test your understanding Should you take your car to the local mechanic for an oil change? Briefly explain Who has a higher opportunity cost of changing engine oil? You or the mechanic? Explain. Who has an absolute advantage in changing engine oil? Explain. Who has a comparative advantage in changing car engine oil? Explain.Explanation / Answer
1. I will take the car to the local mechanic. for me it will taken an hour to change the oil which is 15 minute lesser than what the local mechanic might take. But my opportunity cost for changing the oil will be 200$ which will much higher than that of the payment for a local mechanic. so it will economically feasible for me to save the 1 hour from oil changing task.
2. lawer has a higher opportunity cost of changing the engine oil. He may take a lesser time to change the oil but by using that time he can earn around $200. Local mechanic can't earn an amount around 200$ by using his 1 hr 15 minutes in some other tasks. Therefore the lawer has a higher opportunity cost.
3. Lawer has an absolute advantage in changing the oil. because he can do the task within an hour while the local mechanics takes 1 hour and 15 for the same task to complete. Therefore lawer has an absolute advantage over the local mechanic in changing engine oil.
4. local mechanic has a comparative advantage in changing the engine oil. lawer has an absolute advantage in both the jobs that is, being a lawer and changing the engine oil. loacal mechanic can't do the job of a lawer with an average salary of 200$ per hour. he is having absolute disadvantage in that job. similarly he has disadvantage in changing the engine oil as the lawer is able to finish the task in a lesser time. here the mechanic's disadvantage is least in the second case (changing engine oil). Thereby he has a comparative advantage in changing engine oil.
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