Question

Which of the following is an example of comparative advantage?

A.)Japan makes the best cars in the world and the United States makes the best planes, so Japan makes cars and sells them to the United States and the United States makes planes and sales them to Japan.

B.)China can produce cars cheaper than the United States due to cheaper labor costs, so the United States does not trade with China to protect its auto industry.

C.)It costs Japanese companies $10 to produce MP3 players and $50 to produce computers. Due to relative labor costs and educational levels, it takes Chinese companies $1 to make MP3 players and $40 to produce a computer. Due to opportunity costs, the Chinese make the MP3 players while the Japanese make the computers and the two nations trade.

D.)Germany makes the best chocolate and the United Kingdom produces the best fish and chips. So, Germany makes the chocolate and the Uk makes the fish and chips and the two trade their products.

Answer 1

C.)It costs Japanese companies $10 to produce MP3 players and $50 to produce computers. Due to relative labor costs and educational levels, it takes Chinese companies $1 to make MP3 players and $40 to produce a computer. Due to opportunity costs, the Chinese make the MP3 players while the Japanese make the computers and the two nations trade.