Consider the following Table 1 which represents unit labour requirements for the production of commodity X and Y by country A and B, and answer the questions that follow:

Table 1: Unit labour requirement for production of Good X and Y by Country A and B

(i) Which country among A and B has absolute advantage in producing commodity X and which has in producing commodity Y? Give reason.

(ii) Which country among A and B has comparative advantage in producing commodity X and which has in producing commodity Y? Give reason.

(iii)Suppose after trade each country specialises in production of commodity in which it has a comparative advantage, which country will specialise in producing commodity X?

(i) Absolute Advantage is the ability of a country to produce a good with fewer resources (in this case, fewer labor units) than another country. Looking at the unit labor requirements in the table:

• For commodity X, Country B requires only 1 unit of labor, whereas Country A requires 9 units of labor. Hence, Country B has an absolute advantage in producing commodity X because it can produce the good with less labor.
• For commodity Y, Country A requires 40 units of labor, while Country B requires 9 units of labor. Therefore, Country B has an absolute _________ ________ __________ ____ ____.
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