Question

Comparative Advantage

There are two countries in the world. There are also only two different types of goods produced, food and clothing. Each country has the same amount of “inputs” (i.e. labor, capital, raw materials, etc.), which amounts to 100,000 units of input. Below is a chart that lists out how many units of output each country could create if they created just one type of good. For example, if Country A produced ONLY food, then with 100,000 units of input they could produce 300,000 pounds of food.

Country	Clothing(yard)	Food(LBS)
A	180,000	300,000
B	240,000	900,00

1. Which country has the relative comparative advantage of producing food? Why?

2. Which country has the relative comparative advantage of producing clothing? Why?

3. Ignoring the numbers in the above chart (i.e. think conceptually) if the slope for country B’s food production is steeper than country A’s food production, then which country has the relative comparative advantage in producing food?

Answer 1

The unit productivity of each country for each item is as below:

Country A:

Per unit productivity for clothing: 180,000/100,000 = 1.8

Per unit productivity for Food: 300,000/100,000 = 3.0

Country B:

Per unit productivity for clothing: 240,000/100,000 = 2.4

Per unit productivity for Food: 90,000/100,000 = 0.9

Since per unit productivity for Food is higher for country A, so country A has a relative comparative advantage.

Since per unit productivity for clothing is higher for country B, so country B has a relative comparative advantage.

A steeper slope indicates higher productivity, so if country B food production slope is steeper, then country B has higher productivity and it has a comparative advantage.