Answer to Question #62938 in Macroeconomics for Chris Morillo

Question

Suppose there are 2 countries, Home and Foreign. Each country can produce 2 goods, watches and hats. In Home, workers can make 10 watches a day and 20 hats a day. In Foreign, workers can make 20 watches a day and 30 hats a day. Which country has the absolute advantage in each good?

Answer 1

Foreign country uses less time than Home country to make either watches or hats. Foreign country makes 20 watches while Home country makes 10 watches, and Foreign country makes 20 hats while Home country makes 10 hats. In other words, Foreign country has an absolute advantage in making both watches and hats.