To determine which country has the absolute and comparative advantages in watch and television production, we need to analyze the maximum outputs:
Country A:
- Maximum: 500 watches or 200 televisions
- Opportunity cost of 1 watch = 200 televisions / 500 watches = 0.4 televisions
- Opportunity cost of 1 television = 500 watches / 200 televisions = 2.5 watches
Country B:
- Maximum: 200 watches or 100 televisions
- Opportunity cost of 1 watch = 100 televisions / 200 watches = 0.5 televisions
- Opportunity cost of 1 television = 200 watches / 100 televisions = 2 watches
Absolute Advantage:
- Absolute advantage refers to the ability to produce more of a good with the same resources than another country.
- Country A can produce more watches (500 vs. 200) than Country B, so it has the absolute advantage in watch production.
- Country A can also produce more televisions (200 vs. 100) than Country B, so it has the absolute advantage in television production as well.
Comparative Advantage:
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Comparative advantage refers to the ability to produce a good at a lower opportunity cost than another country.
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For watches:
- Country A's opportunity cost is 0.4 televisions per watch.
- Country B's opportunity cost is 0.5 televisions per watch.
- Since Country A has a lower opportunity cost for watches, it has the comparative advantage in watch production.
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For televisions:
- Country A's opportunity cost is 2.5 watches per television.
- Country B's opportunity cost is 2 watches per television.
- Since Country B has a lower opportunity cost for televisions, it has the comparative advantage in television production.
Based on this analysis:
- Country A has the absolute advantage in watch production and also has the comparative advantage in watch production.
- Thus, the correct response is: Country A has the absolute advantage and the comparative advantage in watch production.
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