Answer to Question #47112 in Microeconomics for Yoyo

Question

Suppose O can produce corn for $1 per bushel and wheat for $6 per bushel while S can produce corn for $2 per bushel and wheat for $4 per bushel. O has an absolute and comparative advantage in corn while S has an absolute and comparative advantage in wheat.

Answer 1

The absolute opportunity costs of producing 1 corn is $1 for O and $2 for S. O can produce corn cheaper, then S, that’s why O has an absolute advantage in corn.
The absolute opportunity costs of producing 1 wheat is $6 per bushel for O and $4 per bushel for S. S can produce wheat cheaper, then O, that’s why S has an absolute advantage in corn.
The alternative opportunity costs of producing 1 corn is $1/$6 = $0.17 for O and $2/$4=$0.5 for S. O can produce corn cheaper, then S, that’s why O has an comparative advantage in corn.
The alternative opportunity costs of producing 1 wheat is $6/1 = $6 for O and $4/$2=$2 for S. S can produce wheat cheaper, then O, that’s why S has an absolute advantage in corn.
We can see that O has an absolute and comparative advantage in corn while S has an absolute and comparative advantage in wheat. That’s why this statement is true.