Question

Arboc can produce a maximum of 60 units of goat yogurt while Arbez can produce a maximum of only 40. Arboc and Arbez can each produce a maximum of 20 units of apples. Each country has constant costs. The two countries trade with each other according to the Law of Comparative Advantage. We can conclude that Arboc has a comparative advantage in _________ and Arbez has a comparative advantage in:________

a. neither good; both goods
b. goat yogurt; apples
c. both goods; neither good
d. apples; goat yogurt

Answer 1

b. goat yogurt; apples

Step-by-step explanation:

A country has comparative advantage in production if it produces at a lower opportunity cost when compared with other countries.

Arbroc opportunity cost in the production of goat yoghurt = 20 / 60 = 0.333

Arbroc opportunity cost in the production of Apples = 60 / 20 = 3

Arbez opportunity cost in the production of goat yoghurt = 20 / 40 = 0.5

Arbez opportunity cost in the production of apples = 40 / 20 = 2

Arbroc has a lower opportunity cost in the production of goat yoghurt, therefore, the country has a comparative advantage in the production of goat yoghurt.

Arbez has a lower opportunity cost when compared with other in the production of Apples, therefore, the country has a comparative advantage in production of Apples.

I hope my answer helps you