Question

Two countries, A and B, produce both apples and bananas. The PPF for Country A is relatively flat when graphing apples on the vertical axis and bananas on the horizontal axis. Which of the following is likely true
A) Country A has a comparative advantage in apples.
B) Country B has a comparative advantage in apples.
C) Country A has a comparative advantage in bananas.
D) Neither has a comparative advantage.

Answer 1

Answer:

C) Country A has a comparative advantage in bananas.

Explanation:

A country has a comparative advantage in producing a good when its opportunity cost of producing that good is lower than that of another country.

Opportunity cost of producing a good is the units of another good that has to be forgone.

Using the products in the question, the opportunity cost of producing bananas is the units of apples that has to be forgone.

A production–possibility frontier (PPF) shows different combinations of two goods that can be produced with the available resources and technology of a country.

When PPFs of a country are compared, a country with a relatively flat PPF has can produce the good on the horizontal axis at lower opportunity than the other country, while other country can produce the good on the vertical axis at lower opportunity cost than the first country.

Since the PPF for Country A is relatively flat when graphing apples on the vertical axis and bananas on the horizontal axis, it therefore implies that country A has a comparative advantage in bananas. By implications, it also implies that country B has a comparative advantage in apples.

All the best.