Chapter 19: Problem 6

Is it possible to have a comparative advantage in the production of a good but not to have an absolute advantage? Explain.

Short Answer

Expert verified

In conclusion, it is possible to have a comparative advantage in the production of a good without having an absolute advantage. Comparative advantage focuses on the relative efficiency and opportunity cost in producing goods, whereas absolute advantage focuses on the total production efficiency of a good. In the given example, Country A has an absolute advantage in both apples and oranges, but neither country has a comparative advantage in either good.

Step by step solution

Define Absolute Advantage

Absolute advantage is the ability of a producer to produce a specific good more efficiently (with fewer resources or at a lower cost) than another producer. A producer with an absolute advantage can produce more units of a good with the same resources or they may use fewer resources to produce the same quantity as another producer.

Define Comparative Advantage

Comparative advantage, on the other hand, refers to the ability of a producer to produce a specific good at a lower opportunity cost than another producer. In other words, a producer has a comparative advantage if they can produce that good by giving up fewer units of another good as compared to another producer.

Give an example

Let's consider two countries: Country A and Country B. They both produce two goods: apples and oranges. Here are the production possibilities for each country using 100 units of labor: - Country A: 100 apples or 50 oranges - Country B: 50 apples or 25 oranges

Calculate Absolute Advantage

First, we will determine the absolute advantage for each good: 1. For apples: Country A can produce 100 apples, while Country B can produce 50 apples. Therefore, Country A has an absolute advantage in producing apples. 2. For oranges: Country A can produce 50 oranges, while Country B can produce 25 oranges. Therefore, Country A also has an absolute advantage in producing oranges.

Calculate Opportunity Cost and Comparative Advantage

Next, we need to calculate the opportunity cost of producing each good in both countries: 1. Country A: The opportunity cost of producing one apple is \( \frac{50}{100} = 0.5 \) oranges. The opportunity cost of producing one orange is \( \frac{100}{50} = 2 \) apples. 2. Country B: The opportunity cost of producing one apple is \( \frac{25}{50} = 0.5 \) oranges. The opportunity cost of producing one orange is \( \frac{50}{25} = 2 \) apples. Comparing the opportunity costs, we can see that both countries have the same opportunity cost for producing apples and oranges. Therefore, neither country has a comparative advantage in producing one good over the other.

Conclusion

In conclusion, it is possible for a producer (or country) to have a comparative advantage in producing a good without having an absolute advantage. In the example provided, despite Country A having an absolute advantage in the production of both apples and oranges, neither country has a comparative advantage in producing one good over the other. Comparative advantage considers the opportunity cost and focuses on the relative efficiency in the production of goods, while absolute advantage focuses on the total production efficiency of a good.

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