ECONOMICS
BARRIERS TO TRADE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Joy
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Susie
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Either A or B
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None of the above
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Detailed explanation-1: -Imagine you have two countries, California, and Mexico that make two goods, tequila, and wine. How much of each good a country can produce is listed off to the right. You can see California can make more of everything and therefore has an absolute advantage in producing both goods.
Detailed explanation-2: -To calculate absolute advantage, look at the larger of the numbers for each product. One worker in Canada can produce more lumber (40 tons versus 30 tons), so Canada has the absolute advantage in lumber. One worker in Venezuela can produce 60 barrels of oil compared to a worker in Canada who can produce only 20.
Detailed explanation-3: -For example, if a country is skilled at making both cheese and chocolate, they may determine how much labor goes into producing each good. If it takes one hour of labor to produce 10 units of cheese and one of of labor to produce 20 units of chocolate, then this country has a comparative advantage in making chocolate.