Consider the following Table 1 which represents unit labour requirements for the production of commodity X and Y by country A and B, and answer the questions that follow: Table 1: Unit labour requirement for production of Good X and Y by Country A and B Commodity X Commodity Y Country A 2 4 Country B 12 6 (i) Which country among A and B has absolute advantage in producing commodity X and which has in producing commodity Y? Give reason. (ii) Which country among A and B has comparative advantage in producing commodity X and which has in producing commodity Y? Give reason. (iii)Suppose after trade each country specialises in production of commodity in which it has a comparative advantage, which country will specialise in producing commodity X?
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According to the information given in the table, the country which enjoys absolute advantage in the production of the commodity X is country B and country B only enjoys absolute advantage in the production of the commodity Y.
But The country named A enjoys comparative advantage over the production of the commodity Y as compared to commodity X. After trade, the country which will have comparative advantage over commodity Y is country A.
Know more:
Q1) Absolute advantage vs comparative advantage.
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Q2) Law of comparative advantage.
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