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