Question

Henry needs 9 acres to produce 100 bushels of corn, but only 3 acres to produce 100 bushels of rice. John needs 8 acres to produce 100 bushels of corn, but only 2 acres to produce 100 bushels of rice. Who has the absolute advantage in both? Who has the comparative advantage in corn? What is their opportunity cost for corn in terms of rice?

a)HenryJohn,4
	b)Henry, Henry, 3
	c)Henry, John, 2
	d)John, John, 3
	e)Henry, Henry, 4

Answer 1

The correct answer to this question is "D"

As John can produce both Corn and Rice using much fewer resources than Henry. John has an absolute advantage in the production of both the goods. In a total of 9 acres of land, Henry will produce 100 bushels of Corn and 300 bushels of rice. John, on the other hand, will produce more than 100 bushels of corn and 500 bushels of rice.

As Henry has a lesser absolute disadvantage in the production of corn, he has a comparative advantage in Corn production.  

The opportunity cost of corn in terms of rice is 3 (for Henry). This means to produce 1 unit of corn Henry has to give up just 3 unit of rice.

(The Correct answer should be John, Henry,3)