Comparative Advantage Practice Problems
Absolute Advantage: makes the most of a good (if using similar resources)
Comparative Outputs: lowest opportunity costs of producing a good (use “other goes over”)
Comparative Inputs: least resources or effort needed to make one unit (use “other goes under”)
Terms of trade: trade can occur only if the “price” of the good each country obtains from trade is less than their
opportunity cost of producing the good themselves.
*Pay attention to the format of the chart to determine if it is an input or output viewpoint. It makes a difference!*
#1.
Hats
Delta
1200
Epsilon
600
AA Hats =
AA Bicycles =
CA Hats =
Trade can occur: _____________ hats for ________________ bicycles
Bicycles
300
300
#2.
Fish
Alpha
10 labor hours
Beta
20 labor hours
AA Fish =
AA Wheat =
CA Fish =
Trade can occur: _____________ fish for ________________ wheat
Wheat
20 labor hours
80 labor hours
CA Wheat =
#3.
Cloth
Gamma
10
Kappa
10
AA Cloth =
AA Food =
CA Cloth =
Trade can occur: _____________ cloth for _______________ food
Food
2
1
#4.
Cars
Lambda
30
Mu
20
AA Cars =
AA Tractors =
CA Cars =
Trade can occur: ____________ cars for ______________ tractors
Tractors
10
40
#5.
Watches
40
CA Bicycles =
CA Food =
CA Tractors =
Omega
10
Phi
10
20
Radios
AA Watches =
AA Radios =
CA Watches =
Trade can occur: __________ watches for _____________ radios
CA Radios =
#6.
Minutes needed to produce 1 radio
Minutes needed to produce 1 bushel of wheat
Ted
20 minutes
5 minutes
Nancy
30 minutes
15 minutes
AA Radios =
AA Wheat =
CA Radios =
CA Wheat =
Trade can occur: __________ radios for ___________wheat
Comparative Advantage Practice Problems KEY
Absolute Advantage: makes the most of a good (if using similar resources)
Comparative Outputs: lowest opportunity costs of producing a good (use “other goes over”)
Comparative Inputs: least resources or effort needed to make one unit (use “other goes under”)
Terms of trade: trade can occur only if the “price” of the good each country obtains from trade is less than their
opportunity cost of producing the good themselves.
*Pay attention to the format of the chart to determine if it is an input or output viewpoint. It makes a difference!*
#1.
Hats
Bicycles
Delta
1200 (1 hat = ¼ bike)
300 (1 bike = 4 hats)
Epsilon
600 (1 hat = ½ bike)
300 (1 bike = 2 hats)
AA Hats = Delta
AA Bicycles = Neither/both CA Hats = Delta
CA Bicycles = Epsilon
Trade can occur: _____3________ hats for _______1_________ bicycles
#2.
Fish
Alpha
10 labor hours (1 fish = ½ wheat)
Beta
20 labor hours (1 fish = ¼ wheat)
AA Fish = Alpha
AA Wheat = Alpha
CA Fish = Beta
Trade can occur: _______3______ fish for ________1________ wheat
Wheat
20 labor hours (1 wheat = 2 fish)
80 labor hours (1 wheat = 4 fish)
CA Wheat = Alpha
#3.
Cloth
Food
Gamma
10 (1 cloth = 1/5 food)
2 (1 food = 5 cloth)
Kappa
10 (1 cloth = 1/10 food)
1 (1 food = 10 cloth)
AA Cloth = Neither/both
AA Food = Gamma
CA Cloth = Kappa
CA Food = Gamma
Trade can occur: __6, 7, 8, or 9__ cloth for ________1_______ food
#4.
Cars
Tractors
Lambda
30 (1 car = 1/3 tractor)
10 (1 tractor = 3 cars)
Mu
20 (1 car = 2 tractors)
40 (1 tractor = ½ car)
AA Cars = Lambda
AA Tractors = Mu
CA Cars = Lambda
CA Tractors = Mu
Trade can occur: _____1_______ cars for _______1_______ tractors
#5.
Watches
40
Omega
Phi
Omega
10
Watches
40 (1W = ¼ R)
10 (1W = 2R)
Radios
10 (1R = 4W)
20 (1R = ½ W)
Phi
10
20
Radios
AA Watches = Omega
AA Radios = Phi
CA Watches = Omega
Trade can occur: _____1_____ watches for ______1_______ radios
CA Radios = Phi
#6.
Minutes needed to produce 1 radio
Minutes needed to produce 1 bushel of wheat
Ted
20 minutes (1 radio = 4 wheat)
5 minutes (1 wheat = ¼ radio)
Nancy
30 minutes (1 radio = 2 wheat)
15 minutes (1 wheat = ½ radios)
AA Radios = Ted
AA Wheat =Ted
CA Radios = Nancy
CA Wheat = Ted
Trade can occur: _____1_____ radios for ______3_____wheat