Suppose that a Canadian worker can produce 100 cars or 10 trucks in a typical workweek, while a German worker can produce 90 cars or 10 trucks in a typical workweek. What can we conclude from these numbers?Multiple choice question.Canada has an absolute advantage in the production of trucks.Canada has a comparative advantage in the production of cars.Germany has a comparative advantage in the production of cars.Germany has an absolute advantage in the production of trucks.
Question
Suppose that a Canadian worker can produce 100 cars or 10 trucks in a typical workweek, while a German worker can produce 90 cars or 10 trucks in a typical workweek. What can we conclude from these numbers?Multiple choice question.Canada has an absolute advantage in the production of trucks.Canada has a comparative advantage in the production of cars.Germany has a comparative advantage in the production of cars.Germany has an absolute advantage in the production of trucks.
Solution
From the given information, we can conclude that:
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Canada has an absolute advantage in the production of cars. This is because a Canadian worker can produce more cars (100 cars) in a week than a German worker (90 cars).
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Canada does not have a comparative advantage in the production of cars. Comparative advantage is determined by who has the lower opportunity cost, not who can produce more. In this case, the opportunity cost for Canada to produce one car is 0.1 trucks (10 trucks/100 cars), while for Germany it is approximately 0.111 trucks (10 trucks/90 cars). So, Germany has a comparative advantage in the production of cars because it gives up less to produce a car.
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Germany does not have an absolute advantage in the production of trucks. Both countries can produce the same amount of trucks (10 trucks) in a week.
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Neither Canada nor Germany has a comparative advantage in the production of trucks. Since both countries can produce the same amount of trucks in a week, the opportunity cost is the same for both. Therefore, neither has a comparative advantage.
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