Assume Nebraska and Virginia each have 100 acres of farmland. The following tabl

Question

Assume Nebraska and Virginia each have 100 acres of farmland. The following table gives hypothetical figures for yield per acre in the two states

Who has the absolute advantage in the production of wheat?

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Who has the absolute advantage in the production of cotton?

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Who has the comparative advantage in the production of wheat?

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Who has the comparative advantage in the production of cotton?

Explanation / Answer

1) Since the yield per acre of wheat is higher in Nebraska so Nebraska has an absolute advantage in the production of wheat.

2) Since the yield per acre of cotton is higher in Nebraska so Nebraska has an absolute advantage in the production of cotton.

3) Since the scale of absolute disadvantage for virginia is less in wheat than in cotton when compared to Nebraska, So virgiania has a comparative advantage in wheat.

4) Since the scale of absolute advantage for nebraska is higher in cotton than in wheat over virginia so Nebraska has a comparative advantage in the production of cooton.

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