MCQ for Economics Nov 2006 Paper 1 Question 19

[arvind0708]

19 The table shows the output per unit of input of two goods, X and Y, in two countries, 1 and 2.
output of X
per unit of input
output of Y
per unit of input
Country 1 70 30
Country 2 50 25
Which statement about the data in the table is correct?
A Country 1 has absolute advantage in the production of X and comparative advantage in the
production of Y.
B Country 1 has absolute advantage in the production of Y and comparative advantage in the
production of X.
C Country 2 has no absolute or comparative advantage.
D Country 2 has comparative advantage in the production of X and no absolute advantage.

What need to be done to get the answer.

 

[Xenon]

A country has absolute adv when it can produce more units of a good using the same amount of resources than another country.
A country has comparative adv when it can produce one good at a lower opportunity cost than another country.
To find out which country has absolute adv, see which country/ies produces more unit of each good. From the data given, Country 1 has absolute adv. in both X and Y good.
To find out which country has comparative adv, find the ratio of good X to Y for both countries. For country 1, it is 1:0.43 and for country 2 it is 1:0.5. This implies that to increase the output by 1 unit of X, 1 needs to sacrifice 0.43 units of Y while 2 needs to sacrifice 0.5 units of Y. 1 has lower opportunity cost and so comparative advantage in X. Likewise 2 has comparative adv in Y.
This gives B.