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Absolute and Comparative Advantage

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Use the following table for the given exercises

Amount of Beef or computers produced by one worker in a day
Canada Japan
Beef 6 5
Computers 2 4

1. Which country has the absolute advantage in beef production?
2. Which country has the absolute advantage in computer production?
3. Which country has the comparative advantage in beef production?
4. Which country has the comparative advantage in computer production?
5. What are the limits of terms of trade? Specifically, when is Canada willing to trade with Japan, and when is Japan willing to trade with Canada?

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Solution Summary

Solution analyzes the given scenario in the light of concepts of absolute and comparative advantage.

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1) Beef production of Canada by one worker in a day=6
Beef production of Japan by one worker in a day=5
Since a worker can produce more of beef in Canada, We can say that Canada has absolute advantage in beef production.

2) Computer production of Canada by one worker in a day=2
Computer production of Japan by one worker in a day=4
Since a worker can produce more of computers in Japan, We can say that Japan has absolute advantage in computer production.

3) Opportunity cost of beef in Canada=2/6=0.33 ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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