The Principle of Comparative Advantage: A Real-Life Example
The Blue country and the Green country both produce hand guns and hard liquor (perfect complements). Consider their production possibilities (see the PPC diagram to the right [click on the thumbnail for a larger diagram]) and answer the following questions.
1. Complete the following table:
|Hand Guns||Hard Liquor|
|Blue||3 Liquors||1/3 Guns|
|Green||1 Liquors||1 Guns|
2. According to the principle of comparative advantage, which country should specialize in producing hand guns for export?