Suppose that the United States and Saudi Arabia can each produce two products, oil and personal computers. The labor requirements per unit of output are provided in the table below:

Labor Requirements Per Unit of Output

United States Saudi Arabia

Oil 10 8

Personal

Computers 30 4

Calculate the labor and opportunity costs for each good, and then compute each country's absolute and comparative advantage. Use the results to determine what good each country should export and explain your reasoning.

1. What does absolute advantage mean? How do you calculate absolute advantage?
2. Which country has an absolute advantage in producing oil?Explain using the data from the table.
3. Which country has an absolute advantage in producing personal computers?Explain using the data from the table.
4. What does comparative advantage mean? How do you calculate comparative advantage?
5. In what output(s) does the U.S. have a comparative advantage? Explain using the data from the table.
6. In what output(s) does Saudi Arabia have a comparative advantage? Explain using the data from the table.
7. What product should each country export? Why?