Iceland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Lavaland can produce 36 units of food per year or 18 units of clothing.Which of the following is true?

Question

Quizplus · Accepted Answer

Iceland has an absolute advantage in both food and clothing production since they can produce more of both goods per person than Lavaland. However, Iceland has a lower opportunity cost of producing food, since they only have to give up 0.5 units of clothing to produce one unit of food, compared to Lavaland's 1 unit of clothing cost per unit of food produced. Therefore, Lavaland has a comparative advantage in producing clothing.

Iceland Can Produce 32 Units of Food Per Person Per