One July the United States sold aircraft worth 1 billion to

One July, the United States sold aircraft worth $1 billion to China and bought aircraft worth only $19,000 from China. During the same month, however, the United States bought $83 million worth of men\'s trousers, slacks and jeans from China but sold only $8,000 worth of trousers, slacks, and jeans to China. Using what you have learned about how trade is determined by comparative advantage, answer the following questions.

A. Which country has the comparative advantage in aircraft production? In production of trousers, slacks, and jeans?
B. Can you determine which country has the absolute advantage in aircraft production? In production of trousers, slacks, and jeans?

Solution

A.

The united states has a comparative advantage in producing aircraft and China will have comparative advantage in producing trousers,slacks and jeans. This can be measured based on the information that US exports $1bn of aircraft to China and receives only $19,000. Now same for the China , they export $83 million in men trousers, slacks and jeans and china only gets $8000 from the US for the same products. This reflects that both countries specialized in some ceratin items and by working in cordination they are able to specialize in the production of one of the items discussed.

B.

Based on the information provided, it is quite clear that China is able to make production of Trousers, slacks and Jean more efficently than US. This provides the China absolute advantage of these products. on the other hand, as we know that the US is able to produce AIRCRAFT more efficently that means it has absolute advantage in this product.