Question

Refer to Exhibit 33-4. Country 1 has a comparative advantage in the production of __________, and country 2 has a comparative advantage in the production of __________.

Answer 1

A. good A; good B

B. both goods; neither good

C. good B; good A

D. neither good; both goods

E. neither good; neither good

Answer:

A. good A; good B

Explanation:

The comparative advantage refers to the ability a country has to produce a good or service with a lower opportunity cost which is the benefit lost when deciding to produce one product over another. According to the table, we can see that Country 1 has a comparative advantage in the production of good A because it has a lower opportunity cost and Country 2 has a comparative advantage in the production of good B because of the lower opportunity cost.