Question

Suppose that the USA can make 15,000,000 cars or 20,000,000 bottles of wine with one year's worth of labor. France can make 10,000,000 cars or 18,000,000 bottles of wine with one year's worth of labor. From these numbers, we can conclude:

a. The USA has an absolute advantage in the production of cars.
b. The USA has a comparative advantage in the production of wine.
c. France has a comparative advantage in the production of cars.
d. France has an absolute advantage in the production of wine.

Answer 1

Answer: A. The USA has an absolute advantage in the production of cars

Explanation: Absolute advantage is an economic term, it describes a situation when a producer can produced goods or services than another producer in larger quantity for the same cost of production or the same quantity for lower cost.

In this scenario USA produced more cars than France with the same labor cost.