Comparative Advantage

A ten-year old mows the lawn even though her parents are better at mowing lawns. This ten year old has a(n) _______ because her opportunity cost is _______.

• Absolute advantage, lower than her parents

• Absolute advantage, higher than her parents

• Comparative advantage, lower than her parents

• Comparative advantage, higher than her parents

In one year, Korea can either produce 200 cars or 1000 tons of lumber. Japan can produce 400 cars or 1200 tons of lumber. What is the opportunity cost for each country to produce one car (in tons of lumber)? Japan:____ tons of lumber Korea:____ tons of lumber

• Japan: 3 tons of lumber

• Korea: 5 tons of lumber

• Japan: 2 tons of lumber

• Korea: 6 tons of lumber

• Japan: 4 tons of lumber

Which country should produce cars?

• Japan, because they have the comparative advantage in cars

• Japan, because they have the comparative advantage in lumber

• Korea, because they have the comparative advantage in cars

• Korea, because they have the comparative advantage in lumber

“The law of comparative advantage states that whoever is best at something should specialize in that product.”

• True

• False

“The law of comparative advantage states that whoever has a lower opportunity cost should specialize in that activity or service."

• True

• False