CFA Practice Question

There are 341 practice questions for this study session.

CFA Practice Question

Units of output per work day:

Which of the following statements is correct?

A. The United States has a comparative advantage in food and Japan has a comparative advantage in clothing.
B. The United States has a comparative advantage in clothing and Japan has a comparative advantage in food.
C. The United States has a comparative advantage in food and clothing.
Correct Answer: B

The U.S. can produce clothing at a lower opportunity cost (1/3 unit of food is given up to produce 1 unit of clothing) than Japan (1/2 unit of food is given up to produce 1 unit of clothing).

User Contributed Comments 6

User Comment
CFA19 compare opportunity cost (ratio) rather than units of output.
aartis US Food 4/16 = 1/4 = 0.25
US Clothing 12/16 = 3/4 = 0.75

Japan Food 3/9 =1/3 = 0.33
Japan Clothing 6/9 = 2/3= 0.67
smillis US: 1 Food, Costs 3 Clothing
Japan: 1 Food, Costs 2 Clothing (cheaper)

US: 1 Clothing, Costs .33 Food (cheaper)
Japan: 1 Clothing, Costs .5 Food
Rotigga If US can make 3 units of clothing for every 1 unit of food versus Japan who can make only 2 units of clothing for every 1 unit of food, then the US is certainly better at making clothing than Japan in terms of quantity produced.
vi2009 US: Total production per day is 4 units of food + 12 units of clothing. (1:3) => 1unit of food = 3 units of clothing OR (1/3:1) 1/3 of food = 1 clothing
Japan: Total production per day is 3 units of food + 6 units of clothing. (1:2) OR (1/2 : 1)
chesschh US has comparative advantage of clothing
i.e They give up 1 unit of food to produce 3 units of clothing while Japan has to give up 1 unit of food to produce only 2 units of clothing.
Japan has comparative advantage of food
i.e They give up 2 units of clothing to produce 1 unit of food while the US has to give up 3 units of clothing to produce 1 unit of food.
You need to log in first to add your comment.