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 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 in watch production, but Country B has 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.

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

Answer 1

To analyze the given scenario, we need to determine both absolute and comparative advantages for both countries in the production of watches and televisions.

Absolute Advantage: A country has an absolute advantage in the production of a good if it can produce more of that good with the same resources than another country.

Comparative Advantage: A country has a comparative advantage in producing a good if it can produce that good at a lower opportunity cost than another country.

Production Possibilities:

• Country A:

  • Maximum Watches: 500
  • Maximum Televisions: 200

• Country B:

  • Maximum Watches: 200
  • Maximum Televisions: 100

Absolute Advantage:

• Watches: Country A can produce 500 watches, while Country B can only produce 200. Thus, Country A has the absolute advantage in watch production.
• Televisions: Country A can produce 200 televisions, while Country B can produce 100. Thus, Country A also has the absolute advantage in television production.

Comparative Advantage:

Next, we need to calculate the opportunity costs for each country.

Country A's Opportunity Cost:

• For 1 Watch:

  • Must give up \( \frac{200 \text{ televisions}}{500 \text{ watches}} = 0.4 \text{ televisions} \)

• For 1 Television:

  • Must give up \( \frac{500 \text{ watches}}{200 \text{ televisions}} = 2.5 \text{ watches} \)

Country B's Opportunity Cost:

• For 1 Watch:

  • Must give up \( \frac{100 \text{ televisions}}{200 \text{ watches}} = 0.5 \text{ televisions} \)

• For 1 Television:

  • Must give up \( \frac{200 \text{ watches}}{100 \text{ televisions}} = 2 \text{ watches} \)

Comparative Advantage Results:

• Watches:

  • Country A: 0.4 televisions per watch
  • Country B: 0.5 televisions per watch
    • Conclusion: Country A has a lower opportunity cost for producing watches (0.4 < 0.5), so it has the comparative advantage in watch production.

• Televisions:

  • Country A: 2.5 watches per television
  • Country B: 2 watches per television
    • Conclusion: Country B has a lower opportunity cost for producing televisions (2 < 2.5), so it has the comparative advantage in television production.

Final Conclusion:

• Country A has the absolute advantage in watch production but also has the comparative advantage in watch production.
• Country B has the absolute advantage in neither but has the comparative advantage in television production.

Thus, the statement that must be true based on this analysis is:

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