Question

Suppose that Country A has 200 workers and Country B has 100 workers. Given their workforce,Country A can produce 200 bushels of corn or 800 barrels of maple syrup. Similarly, with their workforce, Country B can produce 250 bushels of corn or 500 barrels of maple syrup. Suppose the two countries trade with each other. Which of the following are true?

I. Country A has an absolute advantage in maple syrup.
II. Country B has an absolute advantage in maple syrup.
III. Country A specializes in corn.
IV. Country B specializes in corn.
A. I and III.
B. I and IV.
C. II and III.
D. II and IV.

Answer 1

D. II and IV.

Step-by-step explanation:

A country has absolute advantage in the production of a good if it produces more quantity of the good when compared with other countries.

A country should specialise in the production of a good for which it has comparative advantage.

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

For country A,

One worker would produce = 200 / 200 = 1 bushel of corn

One worker would produce = 800 / 200 = 4 barrels of maple syrup.

For country B,

One worker would produce = 250 / 100 = 2.5 bushels of corn

One worker would produce = 500 / 100 = 5 barrels of maple syrup.

It can be seen that country B has absolute advantage in the production of both products because it produces more quantities of the good when compared to country A.

For country A

Opportunity cost of producing 1 bushel of corn = 4 / 1 = 4

Opportunity cost of producing 1 barrel of syrup = 1 / 4 = 0.25

For country B

Opportunity cost of producing 1 bushel of corn = 5 / 2.5 = 2

Opportunity cost of producing 1 barrel of syrup = 0.5

Country b has a lower opportunity cost when compared with country A in the production of corn. So, country B should specialise in the production of corn.

I hope my answer helps you