Question

A typical Australian farmer can produce 8000 lbs of wheat or 500 lbs of potatoes per year. A typical Canadian farmer can produce 5000 lbs of wheat or 400 lbs of potatoes per year. Who has the comparative advantage in producing potatoes?

a. Canada

b. Australia

explain!!!

Answer 1

The correct answer is (a) Canada

A typical Australian farmer can produce 8000 lbs of wheat or 500 lbs of potatoes per year. Hence In order to produce 500 lbs of potatoes Australia has to sacrifice 1 worker for the year and that worker in one year produces 8000 lbs of wheat. Hence for 500 lbs of potatoes Australia has to sacrifice 8000 lbs of wheat. Hence for 1 lbs of potatoes Australia has to sacrifice 8000/500 = 16 lbs of wheat. Hence Opportunity cost of producing Potatoes in Australia is 16 lbs of wheat   

A typical Canadian farmer can produce 5000 lbs of wheat or 400 lbs of potatoes per year. Hence In order to produce 400 lbs of potatoes Canada has to sacrifice 1 worker for the year and that worker in one year produces 5000 lbs of wheat. Hence for 400 lbs of potatoes Canada has to sacrifice 5000 lbs of wheat. Hence for 1 lbs of potatoes Canada has to sacrifice 5000/400 = 12.5 lbs of wheat. Hence Opportunity cost of producing Potatoes in Canada is 12.5 lbs of wheat

As opportunity cost of producing Potatoes is lesser in Canada than Australia. Hence Canada has comparative advantage in Producing potatoes.

Hence, the correct answer is (a) Canada