Suppose that a worker in Country A can make either 10 iPods or 5 tablets each year.Country A has 100 workers.Suppose a worker in Country B can make either 2 iPods or 10 tablets each year.Country B has 200 workers.Suppose Country B's population of workers increased to 600.Now we can say:
A)Country B now possesses the absolute advantage in the production of both goods.
B)Country B now possesses the absolute advantage in tablets only.
C)Country B now has the comparative advantage in iPod production.
D)Country B has no need to trade now.

Question

Quizplus · Accepted Answer

In Country A, a worker can produce 10 iPods or 5 tablets each year. This means that the opportunity cost of producing one iPod is 0.5 tablets (10/5) while the opportunity cost of producing one tablet is 2 iPods (5/10).

In Country B, a worker can produce 2 iPods or 10 tablets each year. This means that the opportunity cost of producing one iPod is 5 tablets (10/2) while the opportunity cost of producing one tablet is 0.2 iPods (2/10).

Comparing the two countries, we see that Country A has a lower opportunity cost of producing iPods (0.5 tablets) than Country B (5 tablets) while Country B has a lower opportunity cost of producing tablets (0.2 iPods) than Country A (2 iPods).

Therefore, Country B has the absolute advantage in producing tablets (since each worker can produce more tablets than a worker in Country A) but Country A has the comparative advantage in producing iPods (since the opportunity cost of producing one iPod is lower in Country A).

Increasing the number of workers in Country B does not change these relative advantages. Therefore, the best choice is B.

Suppose That a Worker in Country a Can Make Either