Knowledge Checkpoint: Consider two countries, X and Y, that produce both computers and cars
Country X: can produce 50 computers OR 100 cars per month
Country Y: can produce 80 computers OR 120 cars per month
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A) Which country has the absolute advantage in producing computers?
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Country Y
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B) Which country has the comparative advantage in producing cars?
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Country X
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C) Briefly explain your reasoning for Part B
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To produce 100 cars, Country X gives up 50 computers, while Country Y gives up 66.67 computers (80* 100/120). Country X has a lower opportunity cost for producing cars.