Answer to Question #179187 in Microeconomics for Truth

Question

Two nations can produce computers and software in the amounts given in the table

below. Does either nation have an absolute advantage in producing the products? Which

nation has a comparative advantage in computers? Which nation has a comparative

advantage in software? Explain your answers

(10 marks)

Answer 1

Firstly, absolute advantage is when one country uses fewer resources to produce same goods produced by another country while, comparative advantage is when goods are produced at a lower cost relative to other good.

Example

NATION COMPUTERS SOFTWARES

(working hrs) (working hrs)

A 3 3

B 2 1

1.Does either nation have an absolute advantage in producing the products?

YES: From the above table for Nation A to produce one computer it requires 1/3 working-hours whereas Nation B will require 1/2 to produce the same good. Therefore, nation A has absolute advantage in producing computers since it requires less working- hours. Similarly, nation A has absolute advantage in producing software because it requires fewer resources

2. Which nation has a comparative advantage in computers? Which nation has a comparative

advantage in software?

NATION A: From the above table the opportunity cost of producing software for nation B is higher than that of nation A( one computer has opposed to two computers for nation B). Thus Nation A has comparative advantage in producing software while nation B has comparative advantage in producing computer (1/2 of software as opposed to one software for nation A)