Consider two nations, country A and country B, that produce goods X and Y. The p
ID: 1146947 • Letter: C
Question
Consider two nations, country A and country B, that produce goods X and Y. The production possibility frontiers for the two nations are graphed with units of good Y measured vertically and units of good X measured horizontally. At the two nation–s current points along their frontiers, the slope of a tangent line is steeper for country A than for country B. We can conclude that:
Select one:
a. country B has an absolute advantage in producing good X.
b. country A has an absolute advantage in producing good X.
c. country B has a comparative advantage in producing good X.
d. country A has a comparative advantage in producing good X.
Explanation / Answer
In the given question, it can be observed that the country A produces the product X at a lower opportunity cost when compared to that of country B. Therefore it can be concluded that the country A has a comparative advantage.
Therefore option (d) country A has a competitive advantage in producing good X is the answer.