In India 3 units of labour are needed to produce 1 unit of cloth and 5 units of labour are needed to produce 1 unit of food;in Australia 2 units of labour are needed to produce 1 unit of cloth and 2 units of labour are needed to produce 1 unit of food.It is correct to state that
A)India has a comparative advantage in producing cloth.
B)India has an absolute advantage in producing cloth.
C)India has no comparative advantage with cloth or wheat.
D)Australia has a comparative advantage in producing cloth.

Question

Quizplus · Accepted Answer

India has a lower opportunity cost (3 units of labour) of producing 1 unit of cloth compared to Australia (2 units of labour). Therefore, India has a comparative advantage in producing cloth. However, we cannot determine absolute advantage from this information. Additionally, there is no information provided about wheat production, so we cannot make a statement about India's advantage in producing wheat. Australia may or may not have a comparative advantage in producing cloth based on the information provided.

In India 3 Units of Labour Are Needed to Produce