Question

Table 18-2

	Output Per Unit Labor Input
	England	Portugal
Cloth	10	12
Wine	1	6

1. Using the data from Table 18-1, ______ has a comparative advantage in wine production, _________has a comparative in cloth production

England; Portugal

Portugal; England

England; England

Portugal;Portugal

2.

Table 18-2

	Output Per Unit Labor Input
	England	Portugal
Cloth	10	12
Wine	1	6

Using the data from Table 18-1, ______ has an absolute advantage in wine production, _________has an absolute advantage in cloth production

England; Portugal

Portugal; England

Portugal; Portugal

England; England

Answer 1

The opportunity costs can be defined as the lost units of output of other goods for producing an additional unit of output of a good.

A country has comparative advantage in the production of that good in which it has lower opportunity cost.

Opportunity cost of 1 cloth for England is= 1/10

=0.1 wine

Opportunity cost of 1 wine for England is= 10/1

=10 clothe

Opportunity cost of 1 cloth for Portugal is= 6/12

=0.5 wine

Opportunity cost of 1 wine for Portugal is= 12/6

=2 clothes

Since opportunity cost of 1 cloth in England is 0.1 wine which is less than opportunity cost 1 cloth in Portugal which is 0.5 wine.

Similarly opportunity cost of 1 wine in England is 10 clothes which is greater than opportunity cost 1 wine in Portugal which is 2 clothes.

Hence Portugal has a comparative advantage in wine production, England has a comparative in cloth production.

Hence option second is the correct answer.

2.

Hence it can be said that if a country has lower opportunity cost in producing a good, then this nation has a comparative advantage in the production of that good.

Since absolute advantage can be defined as the ability of a party to produce a greater quantity of a goods or services compare to its rivals by using the same amount of resources.

As it can be seen in the table that Portugal produces 12 units of clothes which is greater than the production of clothes in Endland. Hence Portugal has absolute advantage in the production of Cloth.

As it can be seen in the table that Portugal produces 12 units of clothes which is greater than the production of 10 clothes in England. Hence Portugal has absolute advantage in the production of Cloth.

As it can be seen in the table that Portugal produces 6 units of wine which is greater than the production of 1 wine in England. Hence Portugal has absolute advantage in the production of wine.

Hence option third is the correct answer.

Third; Portugal, Portugal