Question

Use the following information for the next two questions: the U.S. can produce 4 tons of potatoes per day or 2 tons of wheat per day. Ireland can produce 3 tons of potatoes per day or one ton of wheat.

7.         The U.S. has an absolute advantage in producing____ and comparative advantage in___.

            a.         potatoes,

            b.         wheat,

            c.         both.

            d.         neither.

            a.         potatoes.

            b.         wheat.

            c.         both.

            d.         neither.

Answer 1

Both goods

Wheat

absolute advantage depends on the absolute value
The US has the absolute advantage in producing both goods, because of 4>3 and 2>1.
Comparative advantage depends on the opportunity cost
The opportunity cost of potatoes for US=quantity of wheat/quantity of potato
=2/4=0.5 tons of wheat
The opportunity cost of potatoes for Ireland is =1/3=0.33 tons of wheat
so the US has the comparative advantage in Wheat because the opportunity cost of potatoes is higher than Ireland.