Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate.

-Refer to Table 3-2.Aruba has a comparative advantage in the production of
A) coolers and Iceland has a comparative advantage in the production of radios.
B) radios and Iceland has a comparative advantage in the production of coolers.
C) both goods and Iceland has a comparative advantage in the production of neither good.
D) neither good and Iceland has a comparative advantage in the production of both goods.

Question

Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate.
 
-Refer to Table 3-2.Aruba has a comparative advantage in the production of
A) coolers and Iceland has a comparative advantage in the production of radios. 
B) radios and Iceland has a comparative advantage in the production of coolers. 
C) both goods and Iceland has a comparative advantage in the production of neither good. 
D) neither good and Iceland has a comparative advantage in the production of both goods.

Quizplus · Accepted Answer

To determine which country has a comparative advantage, we need to calculate the opportunity cost of each good for each country. The opportunity cost is the amount of one good that must be given up to produce one more unit of the other good.

For Aruba, the opportunity cost of producing one cooler is 3 radios (80/24), while the opportunity cost of producing one radio is 0.25 coolers (24/80).

For Iceland, the opportunity cost of producing one cooler is 2 radios (40/20), while the opportunity cost of producing one radio is 0.5 coolers (20/40).

Comparing the opportunity costs of the two goods, we see that Aruba has a lower opportunity cost in producing radios, and Iceland has a lower opportunity cost in producing coolers. Therefore, Aruba has a comparative advantage in producing radios and Iceland has a comparative advantage in producing coolers.

Thus, the best choice is B.

Table 3-2 Assume That Aruba and Iceland Can Switch Between Producing Coolers