Question

two countries produce coal and iron. country a can produce a maximum of 500 tons of coal per day or 250 tons of iron. country b can produce a maximum of 900 tons of coal per day or 300 tons of iron. which statement best describes this situation?
a. country a has an absolute advantage producing iron.
b. country a has an absolute advantage producing coal.
c. country a has a comparative advantage producing coal.
d. country a has a comparative advantage producing iron.

Explanation:

Step1: Define absolute advantage

Absolute advantage means a country can produce more of a good than another.

• Coal max: Country A = 500, Country B = 900
• Iron max: Country A = 250, Country B = 300

Country B has absolute advantage in both, so A/B are wrong.

Step2: Calculate opportunity cost (coal)

Opportunity cost of 1 ton coal = $\frac{\text{Iron given up}}{\text{Coal produced}}$

• Country A: $\frac{250}{500} = 0.5$ tons iron
• Country B: $\frac{300}{900} \approx 0.33$ tons iron

Country B has lower opportunity cost for coal.

Step3: Calculate opportunity cost (iron)

Opportunity cost of 1 ton iron = $\frac{\text{Coal given up}}{\text{Iron produced}}$

• Country A: $\frac{500}{250} = 2$ tons coal
• Country B: $\frac{900}{300} = 3$ tons coal

Country A has lower opportunity cost for iron, so it has comparative advantage in iron.

Answer:

D. Country A has a comparative advantage producing iron.