Say that Alland can produce 32 units of food per person per year or 16 units...

Say that Alland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 24 units of food per year or 12 units of clothing. Which of the following is true?

Group of answer choices

Alland has an absolute advantage in producing food but will not trade with Georgeland.

Alland has a comparative advantage, but not an absolute advantage, in producing food.

Georgeland has both a comparative and absolute advantage in producing clothing.

Georgeland has a comparative advantage, but not an absolute advantage, in producing clothing.

Expert Solution

It is given that Alland can produce 32 units of food per person per year and Georgeland can produce 24 units of food per year. Thus with the given resource Alland can produce more food. Hence Alland has absolute advantage in producing food.

It is given that Alland can produce 16 units of clothing per person per year and Georgeland can produce 12 units of clothing per year. Thus with the given resource Alland can produce more clothing. Hence Alland has absolute advantage in producing clothing.

It is given that Alland can produce 32 units of food per person per year or can produce 16 units of clothing per person per year. Hence, in order to produce 1 unit of food, he has to sacrifice 16/32 = 0.5 clothing. Hence opportunity cost of producing Food for Alland is 0.5 units of clothing.

It is given that Georgeland can produce 24 units of food per person per year or can produce 12 units of clothing per person per year. Hence, in order to produce 1 unit of food, he has to sacrifice 12/24 = 0.5 clothing. Hence opportunity cost of producing Food for Georgeland is 0.5 units of clothing.

As both have same opportunity cost. Thus no one has comparative advantage in any good Hence, Trade will not take place.

Hence, the correct answer is (a) Alland has an absolute advantage in producing food but will not trade with Georgeland.

Rahul Sunny answered 1 year ago

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