Answered: Consider 2 countries (the United States…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider 2 countries (the United States and the France) that use input such as labor to
produce 2 different goods: cloth and wine. In France, 1 hour of labor can produce either
20 wines or 10 cloths. In the United States, 1 hour of labor can produce either 30 wines or
20 cloths. You are required to determine how should each country make optimize the use
of labor that is by producing the good in which they have a comparative advantage.

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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