Hong Kong is relatively abundant in labor,while Canada is relatively abundant in capital.In both countries the production of shirts is relatively more labor intensive than the production of computers.According to the factor endowment theory,Hong Kong will have a(n):
A) Absolute advantage in the production of shirts and computers
B) Absolute advantage in the production of computers
C) Comparative advantage in the production of shirts
D) Comparative advantage in the production of computers

Question

Quizplus · Accepted Answer

According to the factor endowment theory, countries tend to have a comparative advantage in producing goods that use their abundant factor of production most intensively. Since Hong Kong is abundant in labor, it will have a comparative advantage in the production of labor-intensive goods like shirts. Therefore, the best choice is C: Comparative advantage in the production of shirts. Hong Kong doesn't have an absolute advantage in any good since absolute advantage depends on overall productivity, which is not determined solely by factor endowments.

Hong Kong Is Relatively Abundant in Labor,while Canada Is Relatively