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Choose the right answer Suppose that the United States can make 15 cars or 20 bottles of wine with one year's worth of labor
Choose the right answer
Suppose that the United States can make 15 cars or 20 bottles of wine with one year's worth of labor. France can make 10 cars or 18 bottles of wine with one year's worth of labor. From these numbers, we can conclude that
a) the United States has a comparative advantage in the production of cars.
b) France has a comparative advantage in the production of wine.
c) the United States has an absolute advantage in the production of cars.
d) All the above are correct.
Expert Solution
The answer is d). U.S. has absolute advantage in producing both cars because they can produce more than France can with one year of labor. To produce one car, the opportunity cost is 20/15 = 1.3 bottles of wine for the U.S., and 18/10 = 1.8 bottles of Wine for France, which is bigger. So U.S. also has a comparative advantage in producing cars. Correspondingly, France has a comparative advantage in producing wine.
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