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Country A:

Computers : 24 ; Cars : 0
Computers: 0 ; Cars: 12
Country B:
Computers: 45 ; Cars: 0
Computers: 0; Cars: 15
Which of the following statements is true according to the table?
A) Country A has an absolute and comparative advantage in the production of computers
B) Country B has an absolute advantage and comparative advantage in the production of computers
C) Country B should import computers and export cars
D) Since Country B has an absolute advantage in the production of both goods, it will not trade with country A
E) neither country can benefit from trade

User VKostenc
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1 Answer

4 votes

Final answer:

Country B has an absolute advantage in producing both computers and cars. Country A has a comparative advantage in cars, and Country B has a comparative advantage in computers. Both countries can benefit from trade by specializing in the goods where they have a comparative advantage.

Step-by-step explanation:

The question provided relates to the economic concept of absolute advantage and comparative advantage in trade. Country A can produce 24 computers or 12 cars, while Country B can produce 45 computers or 15 cars.

Country B has an absolute advantage in producing both goods because it can produce more of each good using the same resources. Comparative advantage is determined by the opportunity cost of producing goods.

For Country A, the opportunity cost of producing one computer is 0.5 cars (12/24), and for one car, it is 2 computers (24/12). For Country B, the opportunity cost of producing one computer is 0.33 cars (15/45), and for one car, it is 3 computers (45/15).

As Country B has a lower opportunity cost for producing computers, it has a comparative advantage in computers. Country A has a comparative advantage in producing cars because it has a lower opportunity cost for producing cars. Thus, both countries can benefit from trade if Country A specializes in producing cars and Country B specializes in computer production.

User Thdox
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