I had this question on my exam and got marked wrong. I chose A for the answer but got marked wrong and told B was the correct answer. I calculated the opportunity cost as:
China 1 wheat = 0.4 camera
South Korea 1 wheat = 0.5 camera
Since, China has the lower opportunity cost, B cannot be correct. Can someone help me and tell me where I went wrong?
One Digital Camera Wheat (per pound)
China 100 hours 4 hours
South Korea 60 hours 3 hours
The table above shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea.
According to the table, South Korea has a comparative advantage in the production of
a) digital cameras
b) wheat
c) both products
d) neither product
Update:......................One Digital Camera................Wheat (per pound)
China......................100hours..................................4hours
South Korea..............60hours.................................3hours
Answers & Comments
You are not wrong, the answer sheet was wrong. As you correctly determined, SK is better at making Cameras, and comes out ahead selling cameras to China for 25lbs of wheat instead of taking the labor required to make a camera and getting only 20 lbs of wheat.
Comparative Advantage means you do the thing you do best and trade with someone for whom some other product is the thing they do best. So calculate one item in terms of the cost of the other item for each country:
In SK, if you make your own camera, it costs you 20lbs of Wheat
if you make wheat and trade for a camera, you have to pay 25lbs of wheat. So if what you want is a camera, make it yourself
In China, if you make your own camera, it costs you 25lbs of Wheat. If you make wheat and trade for a camera, it only costs you 20lbs of wheat. so if you want a camera, grow wheat and trade some of it for a camera.
In SK if you want wheat, you can make a camera and trade it for 25lbs of wheat, or you can make 20 lbs of wheat.
In China if you want Wheat, you make it yourself and get 25lbs, vs only 20 lbs if you make a camera and trade if to SK for some wheat