Application: Comparative & Absolute Advantage

Directions: Answer the following questions concerning comparative & absolute advantage. SHOW YOUR WORK COMPLETELY – FAILURE TO DO SO WILL RESULT IN A LOSS OF PONINTS.

1. Explain the difference between inputs & outputs. Why is determining this important in determining who has comparative or absolute advantage?

2. In 1 hour, Switzerland can make either 500 pairs of skis or 15 gondola swings. England can make either 300 pairs of skis or 12 gondola swings. a. Which country has the absolute advantage in gondolas? Why? b. Which country has the absolute advantage in pairs of skis? Why? c. What is Switzerland’s opportunity cost of making gondolas? d. What is England’s opportunity cost of making skis? e. Who has the comparative advantage in gondola production? Why? f. Who has the comparative advantage in ski production? Why? g. What should each country specialize in producing? Why?

3. In Fiji, 10 hand woven baskets can be produced in 2 hours and 10 outrigger canoes can be made in 5 hours. On the island of New Guinea, 10 hand woven baskets can be produced in 2.5 hours and 10 outrigger canoes can be produced in 20 hours. a. Which country has the absolute advantage in baskets? Why? b. Which country has the absolute advantage in canoes? Why? c. What is Fiji’s opportunity cost of making canoes? d. What is New Guinea’s opportunity cost of making baskets? e. Who has the comparative advantage in basket production? Why? f. Who has the comparative advantage in canoe production? Why? g. What should each country specialize in producing? Why?

4. In 1 week, Ireland can make either 3,000 bottles of scotch or 675 Waterford crystal glasses. Scotland can make either 5,000 bottles of scotch or 320 Waterford crystal glasses. a. Which country has the absolute advantage in scotch? Why? b. Which country has the absolute advantage in crystal glasses? Why? c. What is Ireland’s opportunity cost of making crystal? d. What is Scotland’s opportunity cost of making scotch? e. Who has the comparative advantage in scotch production? Why? f. Who has the comparative advantage in crystal glasses? Why? g. What should each country specialize in producing? Why?