Country A: 20X & 20Y; Country B: 6X & 12Y. Which is true?

Rationale

Country A has a comparative advantage in X.

Country A produces 20 units of X and 20 units of Y, while Country B produces 6 units of X and 12 units of Y. To determine comparative advantage, we compare the opportunity costs of producing each good in both countries. Country A has a lower opportunity cost for X compared to Country B, indicating it can produce X more efficiently relative to Y.

A (A has comp. adv. in X) CORRECT

Country A's ability to produce 20 units of X with an opportunity cost of giving up only 1 unit of Y supports its comparative advantage in X. In contrast, Country B's opportunity cost for producing X is higher, thus making A the more efficient producer of X.

B (A has comp. adv. in Y) YOUR ANSWER

This statement is incorrect because while Country A produces an equal amount of Y, its opportunity cost for Y is higher compared to Country B, which sacrifices fewer units of X to produce Y. Therefore, A does not have a comparative advantage in Y.

C (B has abs. adv. in X) YOUR ANSWER

Although Country B produces less of X, absolute advantage refers to the ability to produce more of a good than another country. Here, Country A produces more units of X (20 vs. 6), meaning Country B does not have an absolute advantage in X.

D (B has comp. adv. in both) YOUR ANSWER

Country B cannot have a comparative advantage in both goods because it is less efficient in producing X compared to Country A. For B to hold a comparative advantage, it would need to have a lower opportunity cost than A in one or both goods, which is not the case here.

Conclusion

Comparative advantage is determined by opportunity costs, and in this scenario, Country A's production of X is more efficient than that of Country B. As a result, Country A holds a comparative advantage in X, while Country B is at a disadvantage in both goods due to higher opportunity costs associated with their production. This insight is crucial for understanding trade dynamics between countries.

Country A: 20X & 20Y; Country B: 6X & 12Y. Which is true?

Country A has a comparative advantage in X.

Related Questions

Related Quizzes

How familiar were you with this question?

Report an Issue

Rate this Practice Test