Question

For each watch that Switzerland produces, it gives up the opportunity to make 50 pounds of chocolate. Germany can produce 1 watch for every 100 pounds of chocolate it produces. Which of the following is true about the comparative advantage between the two countries?

A. Switzerland has the comparative advantage in chocolate.
B. Switzerland has the comparative advantage in watches.
C. Germany has the comparative advantage in watches and chocolate.
D. Germany has the comparative advantage in watches.

Answer 1

B. Switzerland has the comparative advantage in watches.

Step-by-step explanation:

Comparative Advantage is when an economy can produce a commodity with comparatively less opportunity cost in terms of other good sacrifised, than other economy.

It can also be denoted as an economy's more relative productivity in consumption, compared to other economy.

Watch Chocolate

Switzerland 1 50

Germany 1 100

Switzerland can produce a watch by sacrifising lesser units of chocolate i.e 50, than Germany - which sacrifises 100 watches chocolates for a watch production.

Switzerland is 0.02 (1/50) times productive in watch than chocolate. Germany is lesser i.e 0.01 (1/100) time productive in watch than chocolate. Also, Germany is more productive in chocolate than watch 100X > 50X.

So, Switzerland has comparative advantage in Watches & Germany in Chocolate.