Question

Suppose two countries, Country A and Country B, produce maize and cheese respectively. Their respective production is depicted as: Cheese (tonnes/year) Maize(tonnes/year) Country A 125 80 Country B 133 100 Which of the following is correct?

a. Country A has a comparative advantage in maize.
b. Country B has a comparative advantage in maize.
c. Country B has a comparative advantage in cheese.

Answer 1

Country B has a comparative advantage in maize.

Step-by-step explanation:

To determine which country has a comparative advantage in a particular product, we need to compare their opportunity costs. The opportunity cost is the value of the next best alternative that is given up in order to produce a particular product. In this case, Country A produces 80 tonnes of maize and 125 tonnes of cheese, while Country B produces 100 tonnes of maize and 133 tonnes of cheese. The opportunity cost of producing 1 tonne of maize in Country A is 125/80 = 1.5625 tonnes of cheese, while the opportunity cost of producing 1 tonne of maize in Country B is 133/100 = 1.33 tonnes of cheese. Since the opportunity cost of producing maize is lower in Country B, we can conclude that Country B has a comparative advantage in maize.