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Explain the principle of comparative advantage

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Reference no: EM133202727

Problem:

Answer the next question on the basis of the data given for two regions, East and West, of a hypothetical world. The nations have the production possibilities for units of food and clothing given below.

East Production Possibilities

West Production Possibilities

 

A

B

C

D

 

A

B

C

D

Food

24

16

8

0

Food

45

30

15

0

Clothing

0

4

8

12

Clothing

0

5

10

15

Which of the following statements about the two nations is correct based on the principle of comparative advantage?

  • West has a comparative advantage in the production of food.
  • West has a comparative advantage in the production of clothing.
  • East should specialize in the production of food.
  • West should specialize in the production of clothing.

Reference no: EM133202727

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