The Law of Comparative Advantage in Economics - Assignment Example

The basic phenomenon is to ascertain the lower opportunity cost. In the example above, country B seems to have an absolute advantage in producing both toys and pineapples. Country A can only produce 200 toys and 400 pineapples whilst Country B can produce 300 toys and 900 pineapples, the opportunity cost of producing 1 toy for country A would be 2 pineapples whilst the opportunity cost for country B would be 3 pineapples. Hence it can be seen that country A has a comparative advantage over the production of toys. As for the pineapples, if country A produces 1 pineapple, its opportunity cost would be 0.5 toys and if country B produces 1 pineapple, its opportunity cost would be 0.3 toys. This clearly shows that country B has a comparative advantage over Country A over the production of pineapples. Hence it can finally be said that country A should focus on pineapple production while country B should focus on the toys department.