Question

Suppose an American worker can make 100 chairs or catch 1,000 fish per day. A Chilean worker, on the other hand, can produce 40 chairs or catch 400 fish per day. Which of the following statements is true?

a. Chile has the comparative advantage in chair production.
b. Both the United States and Chile have a comparative advantage in chair production.
c. Neither the United States nor Chile has a comparative advantage in chair production.
d. The United States has the comparative advantage in chair production.

Answer 1

Answer:

Neither the United States nor Chile has a comparative advantage in chair production.

Explanation:

A country has comparative advantage in production if it produces at a lower opportunity cost when compared with other countries.

A countrry has absolute advantage if it produces more quantities of a good when compared to another country.

America:

Opportunity cost in producing chairs = 1,000 / 100 = 10

Opportunity cost in fishing = 100 / 1000 = 0.1

For Chile:

Opportunity cost in producing chairs = 400 / 40 = 10

Opportunity cost in fishing = 40/ 400 = 0.1

Neither the United States nor Chile has a comparative advantage in chair production because they produce at the same opportunity cost.

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