Answer to Question #178188 in Economics for zoura

Question

2. Suppose that the US and UK are the only countries in the world and that labor is the only productive input.

Labor Requirements for

One unit of X One unit of Y

UK 24 16

US 12 12

a. Which country has absolute advantage in X? in Y? Explain.

b. Which country has comparative advantage in X? in Y? Explain.

Answer 1

a. Great Britain has an absolute advantage in commodity X (24>12) and Y (16>12).

b. X

UK $\frac{24}{12}=2$ - comparative advantage in X

US $\frac {12}{2}=0.5$

Y

UK $\frac{16}{12}=1.3$ comparative advantage in Y

US $\frac {12}{16}=0.75$