Suppose that Canada and Australia are the only two countries in the world. Suppo
ID: 1151196 • Letter: S
Question
Suppose that Canada and Australia are the only two countries in the world. Suppose also that in Australia, an acre of land can produce 75 tons of apples or 60 bushels of oranges, while in Canada, an acre of land can produce 60 tons of apples or 150 bushels of oranges. Which of the following statements are true? (Select all that apply) ? A. Canada has an absolute advantage in the production of apples because it has higher productivity in apples. ? B. Canada has an absolute advantage in the production of oranges because it has higher productivity in oranges. C. Australia has an absolute advantage in the production of apples because it has higher productivity in apples. D. Australia has an absolute advantage in the production of oranges because it has higher productivity in oranges. Which of the following statements is true of comparative advantage? O A. O B. A country has a comparative advantage in the production of a good if it has a higher opportunity cost of producing that good. A country has a comparative advantage if it can produce more units of a good per hour than other countries. C. A country has a comparative advantage if it can produce less units of a good per hour than other countries. O D. A country has a comparative advantage in the production of a good if it has a lower opportunity cost of producing that good.Explanation / Answer
Answer : 1) Options B and C are correct.
Because if a country produce more quantities of a good by using the same resource quantity in comparison to other countries then it is said that the country has absolute advantage.
According to the given informations, Canada can produce 150 bushels oranges by using an acre of land whereas Australia produces only 60 bushels oranges by using an acre of land. Therefore, here Canada has absolute advantage in producing oranges.
Similarly, Australia produces 75 ton apples by using an acre of land whereas Canada produces only 60 ton apples by using an acre of land. Therefore, here Australia has absolute advantage in producing apples.
2) Option D is correct.
Because according to the comparative advantage theory, if a country has lower opportunity cost to produce a good in comparison to other countries then it is said that the country has comparative advantage.