Answer to Question #117756 in Microeconomics for Harshit Shukla

Question

(b) Consider the following Table 1 which represents unit labour requirements for the
production of commodity X and Y by country A and B, and answer the questions that
follow:
Table 1: Unit labour requirement for production of Good X and Y by Country A
and B
Commodity X Commodity Y
Country A 2 4
Country B 12 6
(i) Which country among A and B has absolute advantage in producing commodity X
and which has in producing commodity Y? Give reason.
(ii) Which country among A and B has comparative advantage in producing commodity
X and which has in producing commodity Y? Give reason.
(iii)Suppose after trade each country specialises in production of commodity in which it
has a comparative advantage, which country will specialise in producing commodity
X?

Answer 1

i.Country A has absolute advantage in producing commodity x and y because it produces greater quantity for the same cost or same quantity at lower cost than in country B.

ii.In comparative advantage concept, country B has an advantage in product Y and country A in commodity x because production is based on lower opportunity cost.

iii.If we compare after trade country A are better off because they can buy same of commodity X and more of commodity Y and country B are also better off because they can buy same of Y and more of commodity X.