Country Specific Advantage Question 1

Country Specific Advantage Question 1 - Country Specific...

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The following table represents the hypothetical productivity of Canada and Mexico in the belt business: Straps/hour Buckles/hour Wage Canadian Workers 100 50 15 CAD Mexican Workers 70 40 100 Pesos 1. Which of the following statements is true a. Canada has an absolute advantage in the production of straps and buckles b. Canada has an absolute advantage in the production of straps but not buckles c. Mexico and Canada both have absolute advantages in straps d. Mexico is at a comparative disadvantage in straps and buckles Explanation: A Canadian worker can produce more straps and more buckles per hour than a Mexican one. 2. The opportunity cost of making straps in Canada is a. ½ b. 2 c. 4/7 d. 7/4 Explanation: Think of this question as “How many buckles must be forgone to produce another strap?” Clearly, for every strap I have a Canadian worker make, I could have had him make ½ a buckle instead. 3. Which of the following is true (from the information in the table) a. Mexico has an absolute advantage in making straps b. Mexico has a comparative advantage in making buckles c. Canada has a competitive advantage in strap making d. Mexico has a competitive advantage in strap making Explanation: Mexico’s opportunity cost of making buckles is 70/40 = 7/4. Canada’s opportunity cost
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This note was uploaded on 07/19/2011 for the course UGBA 178 taught by Professor Staff during the Summer '08 term at Berkeley.

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Country Specific Advantage Question 1 - Country Specific...

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