Discussion
From the following it can be interpreted that:
| Country | Hours required for Commodity | |
|---|---|---|
| X | Y | |
| A | 120 | 100 |
| B | 80 | 90 |
Answer: C
The comparative cost of X in terms of Y: for A the cost of one unit of X is 120/100 = 1.2 units of Y, and for B it is 80/90 = 0.89 units of Y. B gives up less Y to make X, so B has the comparative advantage in X. For Y, the cost for A is 100/120 = 0.83 units of X, and for B it is 90/80 = 1.125, so A has the comparative advantage in Y. B has absolute advantage in both (fewer hours). The answer is option C. The result is the standard test of comparative advantage: compare the opportunity costs, not only the hours.
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