4.7 Check for Understanding: Comparative Advantage

  • Due No Due Date
  • Points 100
  • Submitting a text entry box or a file upload

Xanadu PPC.PNG

Assume two countries, Atlantis and Xanadu, have equal amounts of resources. Atlantis can produce 30 cars or 10 tractors or any combination, as shown by the line MN in the figure above. Xanadu can produce 20 cars or 40 tractors or any combination, as shown by the line PQ in the figure above.

On a separate piece of paper, create a productivity chart.  Calculate the opportunity costs and then answer the questions below.

  • Which country has an absolute advantage in the production of tractors? Explain how you determined your answer.
  • Which country has a comparative advantage in the production of cars? Using the concept of opportunity cost, explain how you determine your answer.
  • If the two countries specialize and trade with each other, which country will import cars? Explain
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