Answer to Question #93556 in Macroeconomics for Lexie

Question

Consider the following table, which shows the production possibilities of two countries X and Y

Country X: Cement production (Output of 100 men) = 100; Paint production (Output of 100 men) = 150
Country Y: Cement production (Output of 100 men) = 40; Paint production (Output of 100 men) = 120
Total cement production = 140; Total paint production - 270

Which one of the following statements is correct?

[1] Country Y has an absolute advantage in the production of paint, and a comparative advantage in the production of cement.
[2] Country X has an absolute advantage in the production of both paint and cement, and a comparative advantage in the production of paint.
[3] Country Y has an absolute advantage in the production of cement, and a comparative advantage in the production of paint.
[4] Country X has an absolute advantage in the production of both paint and cement, and a comparative advantage in the production of cement.

Answer 1

Correct answer is [4]. Country X has an absolute advantage in the production of both paint and cement: Cement production 100 is more then 40 Cement production (in Country Y) and Paint production 150 is more then 120 Paint production (in Country Y). Country X has a comparative advantage in the production of cement, because 150/100=1.5 is smaller then 120/40=3 in Country Y