The
Principle of Comparative Advantage: A Real-Life Example
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?
[Answer]