Assume Canada can either produce three bushels of barley or six bushels of hay in a set period of time, and China can produce either two bushels of barley or three bushels of hay in a set period of time. Which nation has a comparative advantage in producing hay?

Select the correct answer below:

a. Canada

b. China

c. both

d. neither

b. China

Explanation:

Comparative advantage is the economic situation whereby goods and services are produced by one country or company at a lower opportunity cost than other. It enables the selling of goods at a lower cost therby encouraging high margins of sales and profit.

From the scenario question, China would have the comparative advantage in producing hay than Canada. This is as a result of the population of China being high thereby leading to low cost of labour in production. This low cost would translate to cheaper selling price of Hay while increasing the production quantity of the Hay when compared to Canada.

A situation where 5000 people are working towards producing 3 bushels of hay each is far greater than a situation where 400 people are working towards producing 6 bushels of hay as obtainable in Canada.