Question

A 4-column table has 2 rows. The first column is labeled country with entries Country A, Country B. The second column is labeled Cost (units) with entries 1, 1. The third column is labeled Petroleum (units) with entries 16 (0.5 O C), 8 (1 O C). The fourth column is labeled Seafood (units) with entries 8 (2 O C), 8 (1 O C).

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

Compare opportunity costs per unit:

- Country A: 1 cost → 16 petroleum or 8 seafood.
- OC of 1 petroleum = 0.5 seafood (1/16 vs 1/8).
- OC of 1 seafood = 2 petroleum.
- Country B: 1 cost → 8 petroleum or 8 seafood.
- OC of 1 petroleum = 1 seafood.
- OC of 1 seafood = 1 petroleum.

Since A’s OC of petroleum (0.5 seafood) is lower than B’s (1 seafood), A has the comparative advantage in petroleum. Since B’s OC of seafood (1 petroleum) is lower than A’s (2 petroleum), B has the comparative advantage in seafood.

Therefore: Country A should produce petroleum, and Country B should produce seafood.