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

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

Reason: comparative advantage is based on lower opportunity cost. For petroleum, A's opportunity cost is 0.5 units of seafood per unit of petroleum (lower than B's 1), so A has the comparative advantage in petroleum. For seafood, A's opportunity cost is 2 units of petroleum per unit of seafood (higher than B's 1), so B has the comparative advantage in seafood.