Question

Suppose that the United States and Saudi Arabia can each produce two products, oil and personal computers. The labor requirements per unit of output are provided in the table below:

Labor Requirements Per Unit of OutputUnited StatesSaudi ArabiaOil108Personal Computers304

Calculate the labor and opportunity costs for each good, and then compute each country’s absolute and comparative advantage. Use the results to determine what good each country should export and explain your reasoning.

What does absolute advantage mean? How do you calculate absolute advantage?

Which country has an absolute advantage in producing oil? Explain using the data from the table.

Which country has an absolute advantage in producing personal computers? Explain using the data from the table.

What does comparative advantage mean? How do you calculate comparative advantage?

In what output(s) does the U.S. have a comparative advantage? Explain using the data from the table.

In what output(s) does Saudi Arabia have a comparative advantage? Explain using the data from the table.

What product should each country export? Why?

Criteria
Not Evident
Developing
Proficient
Distinguished
Weight
Define absolute advantage
2 Compute the absolute advantage each good, show your work with correct notation
2 Explain which country has the absolute advantage in each good and justify
4 Compute comparative advantage for each good, show you work with correct notation
2 Explain which country has the comparative advantage for each good and justify
4 Describe what good each country should export and justify
4 Articulation of response (citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas.)2
Total:/20

Labor Requirements Per Unit of Output
United States.    Saudi Arabia

Oil        10                           8

Personal Computers
            30                            4

Answer 1

In the first question we are asked to calculate

1. the labor
2. the opportunity cost
3. absolute advantage
4. comparative advantage

We will calculate the above mentioned in the following manner.

Now, we will move on to calculate absolute advantage and comparative advantage.

Absolute advantage means- the ability of a country to produce a product with the lowest possible cost of input or labor cost.

Comparative advantage on the other hand refers to a country's ability to produce a product with least opportunity cost.

Based on our results, we can conclude that since the U.S. has a comparative advantage in the production of oil, it should produce and export oil and since Saudi Arabia has a comparative advantage in the production of PCs, it should produce and export PCs.