Question

Is it possible to have a comparative advantage in the production of a good but not to have an absolute advantage? Explain.

Short answer

Yes, it is possible to have a comparative advantage in the production of a good without having an absolute advantage. Comparative advantage occurs when a producer can produce a good at a lower opportunity cost compared to another producer, whereas absolute advantage refers to a producer being able to produce more units of a good using the same resources compared to another producer. In some cases, a producer might have a lower opportunity cost for producing a particular good, giving them a comparative advantage, even though they may not be able to produce more of that good using the same resources as another producer, thus not having an absolute advantage.

Step-by-step solution

Define Comparative Advantage and Absolute Advantage:

Comparative advantage occurs when a producer can produce a good at a lower opportunity cost compared to another producer. Opportunity cost is the cost of production in terms of the next best alternative forgone. Absolute advantage, on the other hand, occurs when a producer can produce more units of a good using the same amount of resources compared to another producer.

Provide an Example:

Let's consider two countries, Country A and Country B, that produce two goods: Apples and Bananas. The production possibilities for both countries are given in the table below: | **Country** | **Apples (in tons)** | **Bananas (in tons)** | |-------------|----------------------|-----------------------| | A | 6 | 3 | | B | 4 | 2 |

Calculate Opportunity Costs:

First, we will calculate the opportunity cost of producing each good in both countries: - For Country A, the opportunity cost of producing 1 ton of Apples is \(\frac{3}{6} = 0.5\) tons of Bananas, and the opportunity cost of producing 1 ton of Bananas is \(\frac{6}{3} = 2\) tons of Apples. - For Country B, the opportunity cost of producing 1 ton of Apples is \(\frac{2}{4} = 0.5\) tons of Bananas, and the opportunity cost of producing 1 ton of Bananas is \(\frac{4}{2} = 2\) tons of Apples.

Determine Comparative and Absolute Advantages:

Now, we can identify the comparative and absolute advantages for each country in producing both goods: - Country A has an absolute advantage in producing Apples (6 > 4), and it also has an absolute advantage in producing Bananas (3 > 2). - However, both countries have the same opportunity costs for producing each good, so neither Country A nor Country B has a comparative advantage in production of either good. In this example, Country A has an absolute advantage in both goods, but no comparative advantage exists between these two countries.

Conclusion:

It is possible for a producer to have a comparative advantage but not an absolute advantage. If a producer can produce a good at a lower opportunity cost than another producer, they have a comparative advantage, even if they can't produce more of that good using the same resources (absolute advantage). In the above example, we didn't find a situation where a producer had comparative advantage without absolute advantage, but it is possible in various other scenarios.