Suppose China can produce 200 TVs or 200 DVD players.South Korea can produce either 100 TVs or 200 DVD players.In terms of TV production we can conclude that
A) China has an absolute advantage.
B) South Korea has an absolute advantage.
C) China has a comparative advantage.
D) South Korea has a comparative advantage.

Question

Quizplus · Accepted Answer

To determine who has a comparative advantage in the production of TVs, we need to look at the opportunity cost of producing a TV in each country. For China, the opportunity cost of producing 1 TV is giving up the production of 1 DVD player (since they can produce either 200 TVs or 200 DVD players). For South Korea, the opportunity cost of producing 1 TV is giving up the production of 0.5 DVD players (since they can produce either 100 TVs or 200 DVD players). Therefore, South Korea has a higher opportunity cost for producing TVs than China, meaning China has a comparative advantage in TV production.

Suppose China Can Produce 200 TVs or 200 DVD Players