Answer to Question #178756 in Macroeconomics for Zaa

Question

Suppose that the US and UK are the only countries in the world and that labor is the only 

productive input. 

 Labor Requirements for 

 One unit of X One unit of Y

UK 24 16

US 12 12

a. Which country has absolute advantage in X? in Y? Explain.

b. Which country has comparative advantage in X? in Y? Explain.

Answer 1

(a)US has absolute advantage in both X and Y because it produces same unit as UK at lower cost of labour.

(b) US has a comparative advantage in X and Y because it uses a lower opportunity cost to produce one unit of both X and Y compared to UK.