Question

Country A can produce either 2 tons of cocoa or 4 cars with 10 units of labor. Country B can produce either 5 tons of cocoa or 25 cars with 10 units of labor. Based on this information, which of the following is true?

Answer 1

Solution:

Option B) Country A has a comparative advantage in the production of cocoa, while Country B has a comparative advantage in the production of cars.

Comparative advantage refers to an economy’s ability to produce a certain product or service at a lower opportunity cost than its trading partner.

With 10 units of labor, country A is better off producing cocoa, while country B is better off producing cars.