With a given amount of labour and other resources, producers in the nation of Alphania can produce either 100 widgets or 50 wackets. Thus, in Alphania two widgets must be given up to produce each wacket. Using the same amount of labour and resources, producers in Betania can produce 40 widgets or 40 wackets-so one widget must be given up for each wacket produced. Based on this information, which statement is true?
A) Betania has an absolute advantage in producing both goods.
B) Betania has a comparative advantage in producing wackets.
C) Alphania has a comparative advantage in producing wackets, but Betania has an absolute advantage in producing wackets.
D) Alphania has a comparative advantage in producing both goods.

Question

Quizplus · Accepted Answer

Betania has a lower opportunity cost of producing wackets (1 widget per wacket) compared to Alphania (2 widgets per wacket), giving Betania a comparative advantage in producing wackets. Absolute advantage refers to the ability to produce more units of a good using the same amount of resources, and neither country has an absolute advantage in both goods. Therefore, option A and C are incorrect. Option D is incorrect because Alphania has a higher opportunity cost in producing wackets, which means they have a comparative disadvantage in producing wackets.

With a Given Amount of Labour and Other Resources, Producers