For country North, the opportunity cost incurred when 3 tractors are produced is 21 watches. For country South, the opportunity cost incurred when 5 tractors are produced is 100 watches. Which country has the comparative advantage in the production of tractors?

Question

Social Studies

Lincoln Garrett

15 June, 02:00

For country North, the opportunity cost incurred when 3 tractors are produced is 21 watches. For country South, the opportunity cost incurred when 5 tractors are produced is 100 watches. Which country has the comparative advantage in the production of tractors?

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Answers (1)

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Brendan Hahn · Answer 1

The correct answer is: country North has a comparative advantage in the production of tractors, compared to country South.

Explanation:

Comparative advantage is the situation in which a country can produce a good with a lower opportunity cost than its trade partner. In this case, we can calculate the opportunity costs of both countries as follows:

Country North: 3:21 = 1:7. This means that by producing each tractor, this country lets go the opportunity to produce 7 watches.

Country South: 5:100 = 1:20. This means that by producing each tractor, this country lets go the opportunity to produce 20 watches.

We see that country North's cost of opportunity of producing tractors is lower than that of country South.