Practice Problem

Absolute and Comparative Advantage

I. Absolute Advantage, Comparative Advantage, and Trade

Output Produced per Day by One Worker
	England	United States
Wheat	3	10
Cloth	1	2

1. Which country has an absolute advantage in wheat and which in cloth?

2. What is the opportunity cost of wheat in England? In the United States?

3. Which country has a comparative advantage in the production of wheat? Which has a comparative advantage in the production of cloth?

4. If the two countries trade, which will specialize in wheat and which in cloth? Which will export wheat and which will export cloth?

II. Production Possibility Frontier (PPF)

Output of Clothing	Output of Food
20	0
16	5
12	9
8	12
4	14
0	15

1. What's happening to opportunity costs as output of food increases?

2. Say the country gets better at the production of food. What will happen to the production possibility frontier?

3. Say the country gets equally better at producing both food and clothing. What will happen to the production possibility frontier?