In the given scenario, it can easily be seen that Jenny has been producing 20 necklaces or 30 bracelets per hour, whereas Marry can only produce 15 necklaces or 15 bracelets in an hour. For finding out, who has been an absolute advantage, it’s very important to understand the actual concept behind the term. In economics, the actual principle of absolute advantage refers to the actual ability of an individual or a party to produce a larger or greater quantity, service, or product than the other competitors (Robinhood, 2020). Adam Smith has contributed to this process and has described this principle of absolute advantage in the major context of international trade that a person or company can produce a product at a lower price than other competitors.
Different skills are associated with persons and companies due to which absolute advantage is more for one company and low for another. Specifically, the input or time frame remains the same due to more skills, and a greater number of products are produced. So, in the given case, the absolute advantage is associated with Jenny because the production of necklaces is more than Marry's. The time frame taken is the same for both members. But the number of products produced by Jenny is higher. Jenny uses the same amount of resources, and in economics, Mary has a less absolute advantage. The gains obtained from the products are high for 20 necklaces so, the absolute advantage is more in the first case.
The value selected for action to get something is known as opportunity cost. When deciding for a specific goal, a cost is involved in which could be in the form of utility, time, and finance. Optimal decisions are made with the help of opportunity costs (Boyce, 2020). The value that is involved in opportunity cost can vary from one factor to another. Because if one member is taking an opportunity cost of price, others can consider utility. A person has to decide to forget something. The decision can be related to the company, personal life, studies, environment, governmental level, or economy. The biggest factors included in opportunity cost are price. The price factor can vary from the level of income because for a billionaire, and low-level income person preferences are changing.
The time frame for a decision is another factor that varies with the scenario of the situation. The efforts included in taking a decision are an important factor in opportunity cost. The enjoyment of perks is included in Utility. In the given case, Jenny produces 20 necklaces, so the opportunity cost of five necklaces is associated with Jenny while Mary produces only 15 necklaces in on the hour. The time and price opportunity costs are with Jenny because more perks are enjoyed by producing more necklaces in the same time frame that is given to Jenny.
Jenny’s opportunity cost = 20 necklaces in one hour- 15 necklaces produced by Mary in one hour
Jenny’s opportunity cost = 5 necklaces
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