Question

Hours needed for USA and Bangladesh to produce 1 washing machine and 1 tone of processed leather

	1 Washing Machine	1 kg Processed Leather
USA	25	8
Bangladesh	6	4

Then,

1. Who has absolute advantage in both the products.
2. Who has comparative advantage in which product?
3. What is the opportunity cost for each product in each country?

Answer 1

A) BANGLADESH HAS ABSOLUTE ADVANTAGE IN BOTH PRODUCTS, SINCE IT REQUIRES LESS LABOUR HOURS THAN USA.

B) COMPARATIVE ADVANTAGE CAN BE ANALYSED BY THE FOLLOWING TABLE.

COUNTRY	WASHING MACHINE(W) I UNIT	PROCESSED LEATHER(L) 1UNIT	OPPORTUNITY COST
USA	25 HRS	8 HRS	1W=3.125 L (25/8 =3.125) 1L= 0.32W      (8/25=0.32)
BANGLADESH	6 HRS	4 HRS	1W=   1.5L      (6/4=1.5) 1L= 0.667W     (4/6=0.667)

A COUNTRY HAS A COMPARATIVE ADVANTAGE IF THE OPPORTUNITY COST IS LESS AT HOME THAN THE OTHER COUNTRY.

BANGLADESH HAS A COMPARATIVE ADVANTAGE IN THE PRODUCTION OF WASHING MACHINE(W) SINCE OPPORTUNITY COST IS LOW (1.5) AS COMPARED TO THAT OF USA(3.125).

      USA HAS A COMPARATIVE ADVANTAGE IN THE PRODUCTION OF PROCESSED LEATHER(L) SINCE OPPORTUNITY COST IS LOW (0.32) AS COMPARED TO THAT OF BANGLADESH (0.667).

C) OPPORTUNITY COST OF USA

1 UNIT OF WASHING MACHINE(W)= 3.125 UNIT OF PROCESSED LEATHER (L)

1 UNIT OF PROCESSED LEATHER(L)= 0.32 UNIT OF WASHING MACHINE (W)

OPPORTUNITY COST OF BANGLADESH

1 UNIT OF WASHING MACHINE (W) = 1.5 UNIT OF PROCESSED LEATHER (L)

1 UNIT OF PROCESSED LEATHER (L) = 0.667 UNIT OF WASHING MACHINE