Final answer:
Opportunity cost refers to the best alternative forgone and is illustrated by the production possibility frontier (PPF). Comparative advantage exists when one producer has a lower opportunity cost in producing a good than another. To determine who has the comparative advantage in producing rye or corn, one must compare the opportunity costs of producing each good for Andrew and Beth.
Step-by-step explanation:
The concept of opportunity cost is critical in understanding gains from trade. Opportunity cost refers to what you must give up in order to obtain something else. The production possibility frontier (PPF) is a useful tool for illustrating opportunity costs, as it shows the maximum possible output combinations of two products that a business or economy can achieve when all its resources are fully and efficiently employed.
For example, if the United States can produce 100 bushels of corn or 50 barrels of oil using all its resources, the opportunity cost of producing one barrel of oil is two bushels of corn. This is because for every barrel of oil the U.S. decides to produce, it must give up the chance to produce two bushels of corn. Therefore, the relationship between oil and corn production in the U.S. would have a slope of 1/2 on the PPF graph, indicating the trade-off between the two goods.
To analyze the comparative advantage between Andrew and Beth in producing corn and rye, we would need specific data about their production possibilities and the opportunity costs for each good. The individual with the lower opportunity cost of producing rye has a comparative advantage in rye production and would stand to benefit by specializing in rye and trading for corn, whereas the opposite party would have a comparative advantage in producing corn.
In light of these principles, if Andrew's opportunity cost of producing rye is lower than Beth's, Andrew has the comparative advantage in producing rye. Conversely, if Beth's opportunity cost of producing rye is lower, then she has the comparative advantage in rye. The person with the comparative disadvantage in rye would correspondingly have the comparative advantage in corn, as the two goods are being compared directly against each other.