Question

How can the law of comparative advantage be applied to Country A and Country B?

Both countries should produce petroleum and seafood.
Both countries should produce petroleum.
Country A should produce seafood, and Country B should produce petroleum.
Country A should produce petroleum, and Country B should produce seafood.

Answer 1

You can’t pick the correct option unless you know each country’s opportunity costs (or their production possibilities). Comparative advantage says each country should specialize in the good it can produce at the lower opportunity cost, and trade for the other good.

How to decide (step by step)
1. Get each country’s output possibilities (e.g., how many barrels of petroleum or tons of seafood it can produce in a period).
2. Compute opportunity costs:
- OC of 1 unit of petroleum in Country A = (seafood A gives up) / (petroleum A can make) = Sa/Pa.
- OC of 1 unit of petroleum in Country B = Sb/Pb.
3. Compare:
- If Sa/Pa < Sb/Pb, Country A has the comparative advantage in petroleum → A should specialize in petroleum, B in seafood.
- If Sa/Pa > Sb/Pb, Country B has the comparative advantage in petroleum → B should specialize in petroleum, A in seafood.
- If Sa/Pa = Sb/Pb (identical opportunity costs), neither has a comparative advantage → no clear specialization gain from trade; both may continue producing both goods.

Short numeric example
- Country A: either 10 petroleum or 5 seafood → OC of 1 petroleum = 5/10 = 0.5 seafood.
- Country B: either 6 petroleum or 6 seafood → OC of 1 petroleum = 6/6 = 1 seafood.
Since 0.5 < 1, Country A has comparative advantage in petroleum and should produce petroleum; Country B should produce seafood.

If you give the production numbers for A and B I’ll compute the opportunity costs and pick which of your four options is correct.