Question

Minutes Needed to Produce 1 ounce of:

	Ham		Wine
Spain	15 minutes		30 minutes
France	30 minutes		10 minutes

Amount Produced in 10 Hours:

	Ham		Wine
Spain	40 ounces		20 ounces
France	20 ounces		60 ounces

Which country has the absolute advantage in ham production? Which country has the absolute advantage in wine production?  Explain your answer.

Draw the PPFs for each country prior to trade.  Place ham on the y-axis and wine on the x-axis for each country.  Assume that Spain produces 20 ounces of ham and 10 ounces of wine and that France produces 10 ounces of ham and 30 ounces of wine prior to trade.  Annotate these points on your PPFs.

Answer 1

Theory of absolute advantage:

As per this theory different countries produce some goods more efficiently (the ability of a country to produce goods at lower cost per unit) than the other countries. Hence, countries should specialization the production of goods for which they have an absolute advantage.

Amount produced in 10 Hours:

Countries	Ham	Wine
Spain	40 ounces	20 ounces
France	20 ounces	60 ounces
Total	60 ounces	80 ounces

• In this example, Spain has an absolute advantage in producing Ham 40 ounces with the required time of 10 hours, whereas France can able to produce only 20 ounces of Ham.
• France has an absolute advantage in producing Wines 60 ounces within the time framed of 10 hours, whereas Spain can produce only 20 ounces of Wine.