Question

Let's assume that Canada produces one piece of furniture in 8 hours and Ethiopia produces the same product in 10 hours. Also assume that Canada produces one piece of clothing in 6 hours and Ethiopia produces the same product in 12 hours. Then:

Group of answer choices
Ethiopia has an absolute advantage in producing both products and should produce both products without engaging in international trade.
Ethiopia has a comparative advantage in making clothing and should specialize in and sell clothing to Canada in exchange for furniture.
Canada has a comparative advantage in producing clothing and should produce and sell clothing in exchange for furniture.
Canada has an absolute advantage in making furniture and clothing and should specialize in and sell furniture and clothing to Ethiopia in exchange for money.

Answer 1

Based on the given information, Canada has an absolute advantage in producing both furniture and clothing because it takes fewer hours for Canada to produce one unit of each product compared to Ethiopia.

However, when considering comparative advantage, we need to compare the opportunity costs of producing each product. The opportunity cost is the amount of one product that needs to be given up to produce an additional unit of the other product.

In this case, for Canada, the opportunity cost of producing one unit of furniture is 6 units of clothing (8 hours/6 hours), and the opportunity cost of producing one unit of clothing is 1.33 units of furniture (8 hours/10 hours).

For Ethiopia, the opportunity cost of producing one unit of furniture is 0.83 units of clothing (10 hours/12 hours), and the opportunity cost of producing one unit of clothing is 1.2 units of furniture (12 hours/10 hours).

Based on the opportunity costs, Ethiopia has a comparative advantage in producing furniture (lower opportunity cost) and Canada has a comparative advantage in producing clothing (lower opportunity cost).

Therefore, it would be beneficial for Ethiopia to specialize in furniture production and trade furniture with Canada in exchange for clothing, as Ethiopia can produce furniture at a lower opportunity cost compared to Canada, and Canada can produce clothing at a lower opportunity cost compared to Ethiopia. This specialization and trade based on comparative advantage would lead to mutual benefits for both countries.

Step-by-step explanation: