Question

labor hours required to produce S or T in country A and B

	A	B
S	2	8
T	4	16

It is clear that country A has absolute advantage in both goods, but then which country has comparative advantage? they have same opportunity costs and so I'm confused.

Answer 1

Country A has an absolute advantage in producing both goods because Country A can produce both goods by using labor hours than Country B.

Country A's opportunity cost of producing good S = 2/4 = 1/2 units of T .

Country A's opportunity cost of producing good T = 4/2 = 2 units of S.

And Country B's opportunity cost of producing good S = 8/16 = 1/2 units of T.

Country B's opportunity cost of producing good T = 16/8 = 2 units of S.

Because both countries A and B have the same opportunity cost for producing both good S and T. This implies that Neither Country A nor Country B has a comparative advantage in producing good S and good T.