Comparative and Absolute Advantage Quick Check

Question

4 of 54 of 5 Items
Question
Use the table to answer the 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 absolute advantage in banana production.
Country B since it has the absolute advantage in banana production.

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 absolute advantage in banana production.
Country A since it has the absolute 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.
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Answer 1

To determine which country should produce bananas based on absolute and comparative advantage, we can analyze the data given in the table.

Absolute Advantage: A country has an absolute advantage in the production of a good if it can produce more of it using the same resources compared to another country.

From the table:

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

Since Country B can produce more bananas than Country A, Country B has an absolute advantage in banana production.

Comparative Advantage: This is determined by comparing opportunity costs. To find the opportunity cost for each country, we look at the trade-off between producing apples and bananas.

For Country A:

• If Country A produces 500 apples, they can produce 1500 bananas.
• Therefore, the opportunity cost of producing 1 banana in Country A = 500 apples / 1500 bananas = 1/3 apple.

For Country B:

• If Country B produces 800 apples, they can produce 1600 bananas.
• Therefore, the opportunity cost of producing 1 banana in Country B = 800 apples / 1600 bananas = 1/2 apple.

Comparing the opportunity costs:

• Country A has an opportunity cost of 1/3 apple per banana.
• Country B has an opportunity cost of 1/2 apple per banana.

Since Country A has a lower opportunity cost for bananas (1/3 apple) compared to Country B (1/2 apple), Country A has a comparative advantage in banana production.

Conclusion:

According to the analysis, the correct response is:

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