Question

If with one unit of labor the U.S. can produce 20 units of computer software and 10 units of computer hardware and China can produce 5 units of software and 5 units of hardware then

Select one:

A. the United States has a comparative and absolute advantage in both goods.

B. the United States has a comparative advantage in both goods.

C. China has a comparative advantage in hardware and the U.S. has a comparative advantage in software.

D. China has a comparative and absolute advantage in both goods.

Answer 1

Option C

In two good models, one country can have a comparative advantage in one good so all other options, except C, are wrong.

Assuming given production is maximum per worker can be produced and both countries have the same amount of labor then

The opportunity cost of production of a good =maximum production of other good /maximum production of the good

The opportunity cost of computer software for the US =10/20=0.5  computer hardware

The opportunity cost of computer software for China =5/5=1 computer hardware

So the US has a comparative advantage in Computer software and China in computer hardware.