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      Question

      Country A can produce 10 units of cloth or 5 units of

      wine in a day. Country B can produce 6 units of cloth or 4 units of wine in a day. Which country has the comparative advantage in the production of cloth and wine?
      A Country A has the comparative advantage in both cloth and wine. Correct Answer Incorrect Answer
      B Country B has the comparative advantage in both cloth and wine. Correct Answer Incorrect Answer
      C Country A has the comparative advantage in cloth, and Country B has the comparative advantage in wine Correct Answer Incorrect Answer
      D Country B has the comparative advantage in cloth, and Country A has the comparative advantage in wine Correct Answer Incorrect Answer

      Solution

      Comparative advantage is determined by comparing the opportunity costs of producing goods between countries. Opportunity Cost Calculation:

      • Country A:
        • Opportunity cost of 1 unit of cloth = 5/10 = 0.5 units of wine
        • Opportunity cost of 1 unit of wine = 10/5 = 2 units of cloth
      • Country B:
        • Opportunity cost of 1 unit of cloth = 4/6 = 0.67 units of wine
        • Opportunity cost of 1 unit of wine = 6/4 = 1.5 units of cloth
      Comparative Advantage:
      • Country A:
        • Lower opportunity cost in producing cloth (0.5 < 0.67)
      • Country B:
        • Lower opportunity cost in producing wine (1.5 < 2)
      C) Country A has the comparative advantage in cloth, and Country B has the comparative advantage in wine.

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