Question

1. Table 1 shows the production of corn and soy bean in China and Mexico.

Table 1: Production of using1 acre of land for corn and soy bean.

China

Mexico

Corn

8

2

Soy Bean

2

10

Referring to the above table, determine:

a) Which country has an absolute advantage in producing corn and soy bean. Why?

b) Which country has a comparative advantage in producing corn and soy bean. Why?

Answer 1

a) China has an absolute advantage in producing corn and Mexico has soybeans.

It is so because China can produce more corn ( 8>2) using the same 1-acre land while Mexico can only produce 2 units so China has an absolute advantage in producing corn.

Similarly, Mexico can produce more soybean than China with the same amount of land so it has an absolute advantage in producing soybean.

b) The opportunity cost of producing corn for China $= \frac{2}{8} = 0.25$ soybean

The opportunity cost of producing corn for Mexico $= \frac{8}{2} = 4$ soybean

So, as the opportunity cost of producing corn is less for China so China has a comparative advantage in producing corn and Mexico has a comparative advantage in producing soybeans.