Question

consider the following table 1 which represent unit labor requirements for the production of commodity X and Y by country A and B, not answer the questions that follows.

Table 1: Unit labour requirement for production of good X and Y country A and B.

1 Which country among A and B has absolute advantage in producing commodity X and which has in producing commodity Y? Give reason.

2 Which country among A and B has comparative advantage in producing commodity Y? Give reason.

3 Suppose after trade each country specilises in production of commodity in which it has comparative advantage, which country will specilise in producing commodity Y? ​

Answer 1

Answer:

Country A has absolute advantage in producing commodity x and y because it produces greater quantity for the same cost or same quantity at lower cost than in country B.

ii.In comparative advantage concept, country B has an advantage in product Y and country A in commodity x because production is based on lower opportunity cost.

iii.If we compare after trade country A are better off because they can buy same of commodity X and more of commodity Y and country B are also better off because they can buy same of Y and more of commodity X.