Use the table to answer the question.

Question

Apples Bananas
Country A 500 1500
Country B 800 1600
The table above displays the amount Country A and Country B could produce if they focused all their resources and attention on producing either apples or bananas. They wish to enter into a trade agreement, and they are discussing on which country should focus on producing which fruit. Using the table above, which country should produce bananas and why? Remember to take absolute and comparative advantage into account when making this decision.

(1 point)
Responses

Country B since it has the comparative advantage in banana production.
Country B since it has the comparative advantage in banana production.

Country A since it has the comparative advantage in banana production.
Country A since it has the comparative advantage in banana production.

Country B since it has the absolute advantage in banana production.
Country B since it has the absolute advantage in banana production.

Country A since it has the absolute advantage in banana production.

Answer 1

To determine which country should produce bananas based on absolute and comparative advantage, we first need to look at the production capabilities of each country:

• Country A can produce 1500 bananas.
• Country B can produce 1600 bananas.

Absolute Advantage:

Absolute advantage refers to the ability of a country to produce more of a good with the same amount of resources than another country. In this case:

• Country B has an absolute advantage in banana production because it can produce more bananas (1600) compared to Country A (1500).

Comparative Advantage:

Comparative advantage refers to the ability of a country to produce a good at a lower opportunity cost than another country. We can calculate the opportunity cost of producing bananas for each country in terms of apples.

• For Country A, to produce 1 banana, the opportunity cost is: (500 apples / 1500 bananas) = 1/3 apples per banana.

• For Country B, to produce 1 banana, the opportunity cost is: (800 apples / 1600 bananas) = 1/2 apples per banana.

Since the opportunity cost of producing bananas is lower for Country B (1/2 apples per banana) compared to Country A (1/3 apples per banana), Country B has a comparative advantage in banana production.

Conclusion:

Country B should focus on producing bananas since it has both the absolute advantage and comparative advantage in banana production.

The correct response is: Country B since it has the comparative advantage in banana production.