Reference no: EM1340112

Comparative/Absolute Advantage

Still remaining within the Ricardian framework, consider that Canada has 100 units of labor available for production while Mexico has 200 units of labor and both countries produce corn and wheat. Table B summarizes outputs of corn and wheat produced per hour of work in Mexico and Canada with labor (or, hours of work) as the only resource needed for production.

Table B: Output per Hour of Work Corn Wheat

Canada 1 lbs. 2 lbs.

Mexico 2 lbs. 1 lbs.

1. Corresponding to the data listed in Table B, identify the correct statement.

A. Canada has absolute advantage in corn and wheat production.
B. Mexico has absolute advantage in corn and wheat production.
C. Canada has comparative advantage in corn production and Mexico has comparative advantage in wheat production.
D. Mexico has comparative advantage in corn production and Canada has comparative advantage in wheat production.

2. Corresponding to the data listed in Table B, identify the correct statement:

A. Canada has absolute advantage in both goods because it has higher wages and more efficient labor force than Mexico.
B. Mexico has absolute advantage in both goods because it has lower wages and lower cost of production than Canada.
C. Canada has comparative advantage in corn production because it has a lower opportunity cost of producing corn than Mexico.
D. Mexico has comparative advantage in corn production because it has a lower opportunity cost of producing corn than Canada.

3. Corresponding to the data presented in Table B, the opportunity cost of producing one pound of wheat in Canada is :

A. 2 lbs of corn
B. 0.5 lb of corn
C. 1 lb of corn
D. 50 lbs of corn