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Basic Question 6 of 15
Refer to the graph below. We can conclude from the diagram that ______
B. Ricardia has a comparative advantage in manufacturing and Islandia has a comparative advantage in agriculture.
C. Ricardia has a comparative advantage in agriculture and Islandia has a comparative advantage in manufacturing.
A. Islandia has a comparative advantage in both goods.
B. Ricardia has a comparative advantage in manufacturing and Islandia has a comparative advantage in agriculture.
C. Ricardia has a comparative advantage in agriculture and Islandia has a comparative advantage in manufacturing.
User Contributed Comments 11
| User | Comment |
|---|---|
| cbb1 | The nation that has a steeper production possibilities line has comparative advantage in the good on the vertical axis. Since Ricardia has the steeper slope it has the advantage for manufacturing. |
| katybo | I agree. |
| guna | In Ricardia, 1 unit of Agricultural food is equal to 20 units of Manufactured goods, whereas in islandia, 1unit of agricultural foods is 12 units of manufactured goods. So more units of manufactured goods can be produced in Ricardia for every 1 unit of agricultural goods than islandia, hence ricardia has a comparative advantage in producing manufactured goods. |
| Shelton | y_1 = -20 x_1 + 4000, y_2=-12 x_2+6000 x_1 = -1/20 y_1 + 200, x_2 = -1/12 y_2 + 500 20>12 => R for manu, 1/20<1/12 => I for agri. |
| vi2009 | Agriculture: Ricardia = 200 / 4000 = 1/20 Islandia = 500 / 4000 = 1/12 ==> therefore ISLANDIA has comparative advantage Manufacturing: Ricardia = 4000 /200 = 20 Islandia = 4000/500=12 ==> therefore RICARDIA has comparative advantage |
| 2014 | Thanks ccb1. |
| Shaan23 | CCB and others. You cant really judge which is steeper or not by just looking at it. Use the numbers here. If on the vertical axis they were both at 4000 then do visually. But one graph at 6000 and other at 4000 |
| chesschh | We should understand the logic... simplyfing the numbers: Ricardia: 20 M for 1 A Islandia: 12 M for 1 A The logic is: Ricardia has to give up 20 M to produce 1 A while Islandia has to give up only 12 M to produce 1 A (this gives comparative advantage of agriculture to Islandia On the other side... Ricardia has to give up 1 A to produce 20 M while Islandia has to give up 1 A to only produce 12 M (this gives comparative advantage of manufactures products to Ricardia) |
| kseeba17 | Why do some people overcomplicate it? Which one has the bigger difference in between the two production capabilities? Islandia can produce 2.5x R in agriculture Islandia can produce 1.5 x R in manufacturer Clearly Islandia is more productive at producing Agriculture. No need for long elaborate calculations its common sense. |
| maryprz14 | 4000/200 greater than 6000/500 ; Ricardia-Manu 500/6000 greater than 200/4000 ; Islandia-Agri |
| MathLoser | Look at all these math experts |
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Learning Outcome Statements
describe the benefits and costs of international trade
CFA® 2025 Level I Curriculum, Volume 1, Module 6.