Two countries, Foodland and Drinkland, produce food and drinks. In Foodland, one resource unit produces 20 tons of food and one resource unit produces 10 tons of drinks. In Drinkland, one resource unit produces 12 tons of food and one resource unit produces 24 tons of drinks.

Which of the following statements is true of the above scenario?
Select one:
a. Drinkland cannot trade with Foodland because trade is too expensive.
b. Foodland has a comparative advantage in producing drinks.
c. Foodland should stop producing food and just produce drinks.
d. Drinkland has an absolute advantage in producing drinks.

. Drinkland has an absolute advantage in producing drinks

Explanation:

A country has absolute advantage in the production of a good or service If it produces more quantity of the good when compared with other countries.

Drinkland produces 24 drinks when compared to the 10 produced by foodland. Thus, Drinkland has an absolute advantage in the production of drinks.

A country has comparative advantage in production if it produces at a lower opportunity cost when compared with other countries.

The comparative advantage of foodland in producing drinks is 2 and it is 0.5 in producing food.

The comparative advantage of drinkland in producing drinks is 0.5 and 2 in producing food.

Drinkland has a comparative advantage in the production of drinks and foodland has a comparative advantage in the production of food.

A country should specialise in the production of the good in which it has comparative advantage in its production.

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