The table above shows the amounts of cloth and cheese that China and Pakistan can produce in an hour. Which country has the comparative advantage in cloth and which country has the comparative advantage in cheese?
What will be an ideal response?
In China, to produce 8 cloths has an opportunity cost of 16 cheeses, so the opportunity cost of 1 cloth is (16 cheese)/(8 cloths) = 2 cheeses per cloth. In Pakistan, to produce 4 cloths has an opportunity cost of 12 cheeses. Hence the opportunity cost of 1 cloth is (12 cheeses)/(4 cloths) or 3 cheeses per cloth. Because China's opportunity cost of a cloth is lower, China has the comparative advantage in producing cloth.
In China, to produce 16 cheeses has an opportunity cost of 8 cloths, so the opportunity cost of 1 cheese is (8 cloths)/(16 cheeses) = 1/2 cloth per cheese. In Pakistan, to produce 12 cheeses has an opportunity cost of 4 cloths. Hence the opportunity cost of 1 cheese is (4 cloths)/(12 cheeses) or 1/3 cloth per cheese. Because Pakistan's opportunity cost of a cheese is lower, Pakistan has the comparative advantage in producing cheese.
You might also like to view...
As a result of moving more decision making from the periphery of the organization toward the center, typically
a. the flow of information to the decision maker that is relevant to the decision can be weakened b. the flow of information from the decision maker that is relevant to the decision should be enhanced c. the incentive structure for the decision maker should be strengthened d. the incentive structure are usually already in place
If the U.S. dollar appreciates against the Japanese yen:
A. Japanese goods will be more expensive in the United States. B. the U.S. dollar will buy fewer Japanese yen. C. Japanese goods will be cheaper in the United States. D. U.S. goods will be cheaper for Japanese consumers.