Question

1. Which country has the comparative advantage in DVDs? (Remember! OOO Output –Other goes Over!) [2 pts]

Answer 1

Answer: B

Country b has a comparative advantage in producing DVDs

Comparative advantage is advantage enjoyed by that country or a business that is able to produce a good or a service at a lower opportunity cost than the other.

In the given example, we can see that country A will have to give up 1 CD to produce 1 DVD

(100/100) 100 divided by 100

But country B has to give up just 0.25 CDs to produce 1 DVD hence, country B is enjoying a comparative advantage in the production of DVDs

Answer 2

The answer is Country B


Comparative advantages can be described as a country's ability to product a certain product in higher quantities and lower price (efficiently) compared to another country.

In this case, Country A can product 100 CDs and only 100 DVDs, by while country B has the capacity to produce 50 CDs but 200 DVDs.

Clearly Country B has a better infrastructure to produce DVDs in bulk