Question

The table below outlines the possible tradeoffs of producing units of cloth and corn, using one hour of labor input, for Country A and Country B. Country A Country B Units of Cloth Units of Corn Units of Cloth| Units of Corn 14 / 4 / 16 / 8 Country A has a comparative advantage in producing: A) cloth. B) neither cloth nor corn. C) corn.

Answer 1

Answer
Option A
Cloth
Comparative advantage depends on the lower opportunity cost of the production
The opportunity cost of production of a good =maximum production of other good / maximum production of the good
The opportunity cost of Cloth for A =4/14=2/7
The opportunity cost of Cloth for B=8/16=0.5
Country A has a lower opportunity cost in the production of cloth so country A has comparative advantage in the production of cloth
In two good models, one country has a comparative advantage in one good.