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    Comparative Advantage and Absolute Advantage

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    Suppose that each U.S worker can produce 8 units of food or 2 units of clothing daily. Fredonia, which has the same number of workers, each worker can produce 7 units of food or 1 unit of clothing daily. Why does the United States have an absolute advantage in both goods. Which country enjoys a comparative advantage in food? Why?

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    Suppose that each U.S worker can produce 8 units of food or 2 units of clothing daily. Fredonia, which has the same number of workers, each worker can produce 7 units of food or 1 unit of clothing daily. Why does the United States have an absolute advantage in both goods? Which country enjoys a comparative advantage in food? Why?

    Food Clothing
    US 8 units 2 units
    Fredonia 7 units 1 unit

    To produce 1 unit of food 1/8 = 0.125 worker is required in US and 1/7 = 0.143 worker is required in Fredonia. Thus, lesser amount of labor is required to produce 1 unit of food in US than in Fredonia.
    To produce 1 unit of clothing 1/2 = 0.50 worker is required in US and 1 ...

    Solution Summary

    Identifies comparative advantage and absolute advantage

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