Question

Consider two countries, India and Bangladesh, and two goods, Glass Bottle and Ceramic Plate, with labour requirements (hours per unit) as below. Which of the following options is/are correct?

• A. India has an absolute advantage in Glass Bottle production and a comparative disadvantage in Glass Bottle production.
• B. India has an absolute advantage in Ceramic Plate production and a comparative disadvantage in Ceramic Plate production.
• C. India has an absolute advantage in Ceramic Plate production and a comparative disadvantage in Glass Bottle production.
• D. India has an absolute advantage in Glass Bottle production and a comparative disadvantage in Ceramic Plate production.

Hint:

Absolute advantage: lower input per unit. Comparative advantage: lower opportunity cost. Compute OC using the ratios of input coefficients.

Answer 1

The Correct Option is A, C

Step 1: Absolute advantage.
Lower hours $\Rightarrow$ higher productivity. India: $2<3$ (bottle) and $3<9$ (plate) $\Rightarrow$ India has absolute advantage in both goods.
Step 2: Comparative advantage via opportunity cost (OC).
OC of {bottle} in plates: India $=2/3$ plate; Bangladesh $=3/9=1/3$ plate $\Rightarrow$ Bangladesh lower OC $\Rightarrow$ comparative advantage in bottle. Thus India has comparative disadvantage in bottle.
OC of {plate} in bottles: India $=3/2=1.5$ bottles; Bangladesh $=9/3=3$ bottles $\Rightarrow$ India lower OC $\Rightarrow$ comparative advantage in plate.
Step 3: Match options.
(A) True (absolute advantage in bottle; comparative disadvantage in bottle).
(B) False (India has comparative {advantage} in plate).
(C) True (absolute advantage in plate; comparative disadvantage in bottle).
(D) False.
Hence, \(\fbox{(A) and (C)}.\)