Answer to Question #204682 in Macroeconomics for qianhe

Question

The following table describes the production possibilities of two cities in the country of Basebalia:

 

 

Wheat per Worker per Hour Corn per Worker per Hour

Boston 6 6

Chicago 2 4

 

Which city has an absolute advantage in the production of wheat and corn? Which city has a comparative advantage in the production of wheat and corn? Explain your answer.                          

Answer 1

(i) A city is to have an absolute advantage over another city if it can produce the same good with fewer resources than the other. From the table above; Boston produces 1unit of Wheat/worker in $\frac{1}{6}$ worker-hours (10mins) while Chicago requires $\frac{1}{2}$ worker-hours (30mins) to produce 1unit of the same (wheat). In corn production, Boston requires $\frac{1}{6}$ worker-hours (10mins) to produce 1 unit while Chicago requires $\frac{1}{4}$ worker-hours (30mins) to produce a unit of corn. Therefore, Boston city has an absolute advantage over Chicago city.

(ii) A city has a comparative advantage in the production of a good over another city if it has a lower opportunity cost in its production relative to the other city. From the case above; Boston has comparative advantage in wheat production; it gives up 1 unit of corn as opposed to 2 units of corn in Chicago. In corn production; Chicago has comparative advantage since it gives up $\frac{1}{2}$ units as opposed 1unit of wheat for Boston.