I need help please:
Because Saudi Arabia and Australia have ____ in production of crude oil and petroleum products and wool respectively, Saudi Arabia can specialize in the production of crude oil and petroleum products, and Australia can specialize in the production of wool.
Choose one answer.
a. a company advantage
b. an absolute advantage
c. a comparative advantage
d. an effective manufacturing system
e. very low labor costs
e. very low labor costs
The correct answer is c. a comparative advantage.
To understand why, we need to understand the concept of comparative advantage. Comparative advantage refers to the ability of a country (or individual) to produce a particular good or service at a lower opportunity cost compared to other countries (or individuals). Opportunity cost refers to the value of the next best alternative that is given up in order to produce something.
In this scenario, Saudi Arabia has a comparative advantage in the production of crude oil and petroleum products, while Australia has a comparative advantage in the production of wool. This means that each country can produce these goods at a lower opportunity cost than the other.
For example, let's say that Saudi Arabia can produce 1 barrel of crude oil in 10 hours, while Australia can produce the same amount of crude oil in 20 hours. On the other hand, Australia can produce 1 kilogram of wool in 5 hours, while Saudi Arabia can produce the same amount in 10 hours. In this case, Saudi Arabia has a lower opportunity cost in producing crude oil (10 hours versus Australia's 20 hours), while Australia has a lower opportunity cost in producing wool (5 hours versus Saudi Arabia's 10 hours).
By specializing in the production of goods in which they have a comparative advantage, both countries can increase their overall production and efficiency. Saudi Arabia can focus on producing more crude oil and petroleum products, while Australia can focus on producing more wool. This specialization allows both countries to benefit from trade by exchanging the goods they specialize in, leading to increased economic growth and efficiency.
So, in summary, because Saudi Arabia and Australia have different comparative advantages in the production of crude oil and petroleum products and wool respectively, Saudi Arabia can specialize in the production of crude oil and petroleum products, and Australia can specialize in the production of wool.