Use the table to answer the question.

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 A since it has the comparative advantage in banana production.
Country A 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 B since it has the comparative advantage in banana production.
Country B since it has the comparative advantage in banana production.

Answer 1

To determine which country should focus on producing bananas, we need to analyze both absolute and comparative advantages based on the production data in the table.

Absolute Advantage:

• Country A can produce 1500 bananas, while Country B can produce 1600 bananas.
• Therefore, Country B has the absolute advantage in banana production because it can produce more bananas than Country A.

Comparative Advantage: To determine comparative advantage, we compare the opportunity costs for each country when switching from producing one good to another.

Opportunity cost for Country A:

• If Country A produces 1500 bananas, it could produce up to 500 apples. Therefore, the opportunity cost of producing one banana for Country A is: \[ \text{Opportunity cost of 1 banana} = \frac{500 \text{ apples}}{1500 \text{ bananas}} = \frac{1}{3} \text{ apples/banana} \]

Opportunity cost for Country B:

• If Country B produces 1600 bananas, it could produce up to 800 apples. Therefore, the opportunity cost of producing one banana for Country B is: \[ \text{Opportunity cost of 1 banana} = \frac{800 \text{ apples}}{1600 \text{ bananas}} = \frac{1}{2} \text{ apples/banana} \]

Comparative advantage conclusion:

• Country A has a lower opportunity cost for bananas (1/3 apples) compared to Country B (1/2 apples). Therefore, Country A has a comparative advantage in producing bananas.

Final Decision: Based on the analysis above, the correct response is: Country A since it has the comparative advantage in banana production.