Scenario: Foodland and Drinkland
Two countries, Foodland and Drinkland, produce food and drinks. In Foodland, one resource unit produces 20 tons of food and one resource unit produces 10 tons of drinks. In Drinkland, one resource unit produces 12 tons of food and one resource unit produces 24 tons of drinks.
Food Drinks
Foodland 20 10
Drinkland 12 24
-Which of the following statements is true of the above scenario?

Question

Quizplus · Accepted Answer

Drinkland has an absolute advantage in producing drinks because one resource unit produces 24 tons of drinks, which is more than double the amount that one resource unit in Foodland produces. However, this does not mean that Foodland cannot trade with Drinkland as comparative advantage takes into account opportunity cost, which is not reflected in absolute advantage.