Question:
Country X max output: Rice 5000, Coffee 5000. Country Y max output: Rice 10000, Coffee 5000. What is the correct statement?
(1) Country X has a comparative advantage in rice.
(2) Country X has a comparative advantage in coffee.
(3) Country X has an absolute advantage in coffee.
(4) Country Y has an absolute advantage in coffee.
(5) Country Y has a comparative advantage in coffee.
Correct Answer:
(2)
Answer Explanation:
Calculate the internal opportunity costs. In Country X, to get 1 Coffee, they sacrifice 1 Rice ($5000/5000$). In Country Y, to get 1 Coffee, they sacrifice 2 Rice ($10000/5000$). Because Country X gives up fewer units of Rice to produce Coffee (1 < 2), Country X holds the comparative advantage in Coffee production.
Topic: International Trade Year: 2019
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