MCQ for Economics June 2008 Paper 1 Question 19

[arvind0708]

19 The table shows the ability of two countries, P and Q, to produce two goods, Y and Z.
production of good Y
per person
production of good Z
per person
country P 1000 1600
country Q 1500 2000
Which statement is correct?
A P has an absolute advantage in Z and Q has a comparative advantage in Y.
B P has an absolute advantage in Z and Q has an absolute advantage in Y.
C P has a comparative advantage in Z and Q has an absolute advantage in Y.
D P has a comparative advantage in Y and Q has an absolute advantage in Z.

wHAT NEED TO BE DONE TO GET THE CALCULATION.

 

[Xenon]

This is a question regrading price advantages.
Country Q has absolute advantage in both Z and Y since it can produce more of them. On the other hand, P has comparative advantage in Z since it can produce Z at lower opportunity cost (number of units of Y sacrificed to increase the output of Z) than country Y. Likewise, Q has comparative adv. in Y.
This indicates the correct option is C.