Suppose that a worker in Country A can produce either 25 bananas or 5 tomatoes each year. Country A has 200 workers. Suppose a worker in Country B can produce either 18 bananas or 6 tomatoes each year. Country B has 400 workers. The workers in Country A should specialize in producing _____ because it has a(n) _____ at producing that good.
A) bananas; comparative advantage
B) tomatoes; comparative advantage
C) bananas; absolute advantage
D) tomatoes; absolute advantage

Question

Quizplus · Accepted Answer

To determine which country should specialize in which good, we need to look at comparative advantage. Comparative advantage is the ability to produce a good at a lower opportunity cost than another country. We can calculate opportunity cost by looking at how much of one good a country must give up to produce one unit of another good.

For Country A: 
25 bananas/5 tomatoes = 5 bananas per tomato
So, to produce 1 tomato, Country A must give up the opportunity to produce 5 bananas. 
5 tomatoes/25 bananas = 0.2 tomatoes per banana
So, to produce 1 banana, Country A must give up the opportunity to produce 0.2 tomatoes.

For Country B: 
18 bananas/6 tomatoes = 3 bananas per tomato
So, to produce 1 tomato, Country B must give up the opportunity to produce 3 bananas. 
6 tomatoes/18 bananas = 0.33 tomatoes per banana
So, to produce 1 banana, Country B must give up the opportunity to produce 0.33 tomatoes.

Based on these calculations, we can see that Country A has a lower opportunity cost for producing bananas, while Country B has a lower opportunity cost for producing tomatoes. Therefore, Country A should specialize in producing bananas and Country B should specialize in producing tomatoes.

Suppose That a Worker in Country a Can Produce Either