(Absolute and Comparative Advantage) You have been given the following information concerning the production of wheat and cloth in the United States and United Kingdom:

Labor Hours Required to Produce One Unit
United Kingdom United States
Wheat 2 1
Cloth 6 5
What is the opportunity cost of producing a unit of wheat in the United Kingdom? the United States?

In the UK it costs 6 cloth to get 2 wheat. Ergo, cost for 1 wheat is 3 cloth. In US it cost 5 cloth to get 1 wheat.

Suppose North has 30 million hours of labor in total per year, and South has 20 million hours of labor per year.

a. Which country has an absolute advantage in wine production? Explain

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To find the opportunity cost of producing a unit of wheat in the United Kingdom and the United States, we need to compare the labor hours required to produce wheat and cloth in each country.

Opportunity cost refers to the sacrifice of producing one good in terms of the other good, given limited resources. It represents the amount of one good that must be given up to produce an additional unit of the other good.

In the United Kingdom, producing one unit of wheat requires 2 labor hours, and producing one unit of cloth requires 6 labor hours.

In the United States, producing one unit of wheat requires 1 labor hour, and producing one unit of cloth requires 5 labor hours.

To determine the opportunity cost, we compare the number of labor hours required to produce each good in each country.

In the United Kingdom:
Opportunity cost of producing one unit of wheat = Labor hours required to produce one unit of cloth / Labor hours required to produce one unit of wheat
Opportunity cost of producing one unit of wheat = 6 labor hours / 2 labor hours
Opportunity cost of producing one unit of wheat = 3 units of cloth

In the United States:
Opportunity cost of producing one unit of wheat = Labor hours required to produce one unit of cloth / Labor hours required to produce one unit of wheat
Opportunity cost of producing one unit of wheat = 5 labor hours / 1 labor hour
Opportunity cost of producing one unit of wheat = 5 units of cloth

Therefore, the opportunity cost of producing a unit of wheat in the United Kingdom is 3 units of cloth, while in the United States it is 5 units of cloth.