Answer to Question #248476 in Macroeconomics for yyl

Question

“Assume the world economy has only two countries, Utopia and Nirvana, each of which

produces two products, milk and honey. Suppose that Utopia can produce 12 bottles of milk or

10 bottles of honey per hour, and Nirvana can produce 4 bottles of milk or 6 bottles of honey

per hour.”

Do you agree that Utopia has both the absolute and comparative advantages over milk and

honey? Justify your answer with appropriate analysis.

Answer 1

I agree that Utopia has both absolute and comparative advantages over milk and honey.

This is because over the same time, that is an hour, it is seen that Utopia produces more quantities of milk and honey in relation to Nirvana.

In one hour, Utopia produces 8 more bottles of milk and 4 more bottles of honey as compared to Nirvana.