To determine which statements are true regarding the absolute and comparative advantages in watch production for Country A and Country B, we need to analyze their production possibilities.
Absolute Advantage:
- Country A can produce 500 watches or 200 televisions.
- Country B can produce 200 watches or 100 televisions.
Country A has the absolute advantage in both watches and televisions because it can produce more of each than Country B when utilizing all its resources.
Comparative Advantage: To determine comparative advantage, we need to calculate the opportunity cost of producing watches for each country.
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Country A:
- The opportunity cost of producing 1 watch is equal to the televisions that could have been produced instead:
- If Country A produces 500 watches, it forgoes producing 200 televisions.
- Opportunity cost of 1 watch = 200 televisions / 500 watches = 0.4 televisions per watch.
- The opportunity cost of producing 1 watch is equal to the televisions that could have been produced instead:
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Country B:
- Similarly, the opportunity cost of producing 1 watch:
- If Country B produces 200 watches, it forgoes producing 100 televisions.
- Opportunity cost of 1 watch = 100 televisions / 200 watches = 0.5 televisions per watch.
- Similarly, the opportunity cost of producing 1 watch:
Comparative advantage is held by the country with the lower opportunity cost. Since Country A has an opportunity cost of 0.4 televisions per watch and Country B has an opportunity cost of 0.5 televisions per watch:
- Country A has the comparative advantage in watch production (lower opportunity cost).
Conclusion:
- Country A has the absolute advantage in watch production.
- Country A has the comparative advantage in watch production.
So the correct answer is:
Country A has the absolute advantage and the comparative advantage in watch production.