Question

Table: Production Possibilities for Tractors and Crude Oil

Country	Tractors	Crude Oil (thousands of barrels)
United States	80	40
Mexico	60	180

Reference: Ref 8-5 Table: The Production Possibilities for Tractors and Crude Oil

(Table: The Production Possibilities for Tractors and Crude Oil) Use Table: The Production Possibilities for Tractors and Crude Oil. The United States has a comparative advantage in _____, and Mexico has a comparative advantage in _____.

Select one:

a. both goods; neither good

b. tractors; crude oil

c. neither good; both goods

d. crude oil; tractors

Answer 1

Answer is b

United States       Mexico

Tractors                                                                    80                    60

Crude oil (thousands of barrels)                           40                   180

1. United States’s opportunity cost of producing tractors is (40/80 =1/2) 500 barrels of oil

2. United State’s opportunity cost of producing oil (80/40)=2 tractors.

3. Mexico’s opportunity cost of producing tractors is (180/60 = 3) 3000 barrels of oil

4. Mexico’s opportunity cost of producing oil (60/180) 1/3^rd tractor.

United States has a comparative advantage in the production of tractors since it’s O.C. is lower.

Mexico has a comparative advantage in the production of oil since its O.C. is lower (1/3^rd versus 2 for the United States.