Question
Economics Semester Exam
27 of 3127 of 31 Items
Question
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)
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 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.
Country B 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.
Answers
GPT-4o mini
To analyze the situation, we first need to define absolute and comparative advantage:
- **Absolute Advantage**: A country has an absolute advantage in the production of a good if it can produce more of that good using the same resources as another country.
- **Comparative Advantage**: A country has a comparative advantage in the production of a good if it can produce that good at a lower opportunity cost than another country.
Let's break down the production possibilities for each country:
- **Country A** can produce:
- 500 watches (if all resources are used for watches)
- 200 televisions (if all resources are used for televisions)
The opportunity cost of producing 1 watch in Country A is:
- \(200 \text{ TVs} / 500 \text{ watches} = 0.4 \text{ TVs per watch}\)
The opportunity cost of producing 1 television in Country A is:
- \(500 \text{ watches} / 200 \text{ TVs} = 2.5 \text{ watches per TV}\)
- **Country B** can produce:
- 200 watches (if all resources are used for watches)
- 100 televisions (if all resources are used for televisions)
The opportunity cost of producing 1 watch in Country B is:
- \(100 \text{ TVs} / 200 \text{ watches} = 0.5 \text{ TVs per watch}\)
The opportunity cost of producing 1 television in Country B is:
- \(200 \text{ watches} / 100 \text{ TVs} = 2 \text{ watches per TV}\)
Now, let's compare the two countries:
- **Absolute Advantage**:
Country A produces more watches (500 vs 200) and more televisions (200 vs 100). Therefore, Country A has the absolute advantage in both watches and televisions.
- **Comparative Advantage**:
- For watches:
- Country A's opportunity cost is 0.4 TVs per watch.
- Country B's opportunity cost is 0.5 TVs per watch.
Country A has the lower opportunity cost for watches, so it has the comparative advantage in watch production.
- For televisions:
- Country A's opportunity cost is 2.5 watches per TV.
- Country B's opportunity cost is 2 watches per TV.
Country B has the lower opportunity cost for televisions, so it has the comparative advantage in television production.
Given this analysis, we can conclude:
- Country A has the absolute advantage and the comparative advantage in watch production.
- Country B has the comparative advantage in television production.
So, the correct response is:
**Country A has the absolute advantage and the comparative advantage in watch production.**
- **Absolute Advantage**: A country has an absolute advantage in the production of a good if it can produce more of that good using the same resources as another country.
- **Comparative Advantage**: A country has a comparative advantage in the production of a good if it can produce that good at a lower opportunity cost than another country.
Let's break down the production possibilities for each country:
- **Country A** can produce:
- 500 watches (if all resources are used for watches)
- 200 televisions (if all resources are used for televisions)
The opportunity cost of producing 1 watch in Country A is:
- \(200 \text{ TVs} / 500 \text{ watches} = 0.4 \text{ TVs per watch}\)
The opportunity cost of producing 1 television in Country A is:
- \(500 \text{ watches} / 200 \text{ TVs} = 2.5 \text{ watches per TV}\)
- **Country B** can produce:
- 200 watches (if all resources are used for watches)
- 100 televisions (if all resources are used for televisions)
The opportunity cost of producing 1 watch in Country B is:
- \(100 \text{ TVs} / 200 \text{ watches} = 0.5 \text{ TVs per watch}\)
The opportunity cost of producing 1 television in Country B is:
- \(200 \text{ watches} / 100 \text{ TVs} = 2 \text{ watches per TV}\)
Now, let's compare the two countries:
- **Absolute Advantage**:
Country A produces more watches (500 vs 200) and more televisions (200 vs 100). Therefore, Country A has the absolute advantage in both watches and televisions.
- **Comparative Advantage**:
- For watches:
- Country A's opportunity cost is 0.4 TVs per watch.
- Country B's opportunity cost is 0.5 TVs per watch.
Country A has the lower opportunity cost for watches, so it has the comparative advantage in watch production.
- For televisions:
- Country A's opportunity cost is 2.5 watches per TV.
- Country B's opportunity cost is 2 watches per TV.
Country B has the lower opportunity cost for televisions, so it has the comparative advantage in television production.
Given this analysis, we can conclude:
- Country A has the absolute advantage and the comparative advantage in watch production.
- Country B has the comparative advantage in television production.
So, the correct response is:
**Country A has the absolute advantage and the comparative advantage in watch production.**