If Country A uses all of the resources at its disposal, it can produce a maximum of 500 watches or 200 televisions. Within the same time frame, if Country B uses all of its resources, it can produce a maximum of 200 watches or 100 televisions. Which of the following must be true?(1 point)

Question

Responses

Country B has the absolute advantage and the comparative advantage in watch production.
Country B has the absolute advantage and the comparative advantage in watch production.

Country B has the absolute advantage in watch production, but Country A has the comparative advantage in watch production.
Country B has the absolute advantage in watch production, but Country A has the comparative advantage in watch production.

Country A has the absolute advantage and the comparative advantage in watch production.
Country A has the absolute advantage and the comparative advantage in watch production.

Country A has the absolute advantage in watch production, but Country B has the comparative advantage in watch production.

Answer 1

To determine absolute and comparative advantages, we need to analyze the production capabilities of both countries.

1. Absolute Advantage: This is determined by comparing the maximum outputs of each country. A country has an absolute advantage in producing a good if it can produce more of that good using the same resources as another country.

   • Country A can produce a maximum of 500 watches or 200 televisions.
   • Country B can produce a maximum of 200 watches or 100 televisions.

   Clearly, Country A can produce more watches (500 vs. 200) and more televisions (200 vs. 100), so Country A has the absolute advantage in both watches and televisions.

2. Comparative Advantage: This is determined by looking at the opportunity costs of producing the goods in each country.

   • For Country A:

     • The opportunity cost of 1 watch is 200 televisions / 500 watches = 0.4 televisions per watch.
     • The opportunity cost of 1 television is 500 watches / 200 televisions = 2.5 watches per television.

   • For Country B:

     • The opportunity cost of 1 watch is 100 televisions / 200 watches = 0.5 televisions per watch.
     • The opportunity cost of 1 television is 200 watches / 100 televisions = 2 watches per television.

Comparative Advantage Summary:

• Country A's opportunity cost for watches is lower than Country B's (0.4 < 0.5), so Country A has the comparative advantage in watch production.
• Conversely, Country B has a lower opportunity cost in producing televisions (2 < 2.5), so B has the comparative advantage in television production.

Given this analysis:

• Country A has the absolute advantage in both goods.
• Country A also has the comparative advantage in watch production.

Thus, the true statement is: Country A has the absolute advantage and the comparative advantage in watch production.