According to Table 20.2, Australia has an: a. absolute advantage in the producti

Question

According to Table 20.2, Australia has an: a. absolute advantage in the production of only food. b. absolute advantage in the production of both food and computers. c. absolute disadvantage in the production of both food and computers. d. absolute advantage in the production of only computers. e. absolute disadvantage in the production of food.

The data in the table below assumes that with the same quantity of resources, both Australia and Philippines produces food and computers. Australia can make 1,000 computers or 2,000 units of food in a day, and the Philippines can make 200 computers or 1,200 units of food in a day Table 20.2 ProductsComputers Food Country Australia 1,000 2,000 Philippines 200 1,200

Explanation / Answer

A country is said to have absolute advantage in production of a good in compariosn to other country when it can produce the good in greater quantity in comparison to other country provided the quantity of resources are same in both countries.

In the given case, it has been provided that both Australia and Philippines have same quantity of resources.

With same quantity of resources, Australia can produce either 1,000 computers or 2,000 units of food while Philippines can produce either 200 computers or 1,200 units of food a day.

Since, Australia can produce greater quantity of both computers and food in comparison to Philippines given the same quantity of resources, it can be said that Australia has absolute advantage in production of both food and computers.

Hence, the correct answer is option (b).

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