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:

  Opportunity Costs
  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?