- Calculate opportunity costs: Country A produces Petroleum at 0.5 Seafood/Petroleum, while Country B produces it at 1 Seafood/Petroleum.
- Compare advantages: Country A has a lower opportunity cost for Petroleum, meaning it has the comparative advantage in that industry.
- Conclusion: Based on comparative advantage, Country A should focus on the petroleum industry only.
- Final Answer: \(\boxed{\text{focus on the petroleum industry only}}\)
Explanation
- Analyzing Opportunity Costs
To determine the best industry focus for Country A, we analyze the opportunity costs of production for both countries. The opportunity cost is the amount of one good that must be sacrificed to produce an additional unit of another good.
For Country A:
- To produce 16 units of Petroleum, it gives up 8 units of Seafood. Thus, the opportunity cost of 1 unit of Petroleum is \(\frac{8}{16} = 0.5\) units of Seafood.
- To produce 8 units of Seafood, it gives up 16 units of Petroleum. Thus, the opportunity cost of 1 unit of Seafood is \(\frac{16}{8} = 2\) units of Petroleum.
For Country B:
- To produce 8 units of Petroleum, it gives up 8 units of Seafood. Thus, the opportunity cost of 1 unit of Petroleum is \(\frac{8}{8} = 1\) unit of Seafood.
- To produce 8 units of Seafood, it gives up 8 units of Petroleum. Thus, the opportunity cost of 1 unit of Seafood is \(\frac{8}{8} = 1\) unit of Petroleum.
- Determining Comparative Advantage and Best Decision
We now compare the opportunity costs between the two countries:
- For Petroleum: Country A has an opportunity cost of 0.5 units of Seafood, while Country B has an opportunity cost of 1 unit of Seafood. Since 0.5 < 1, Country A has a comparative advantage in the production of Petroleum.
- For Seafood: Country A has an opportunity cost of 2 units of Petroleum, while Country B has an opportunity cost of 1 unit of Petroleum. Since 1 < 2, Country B has a comparative advantage in the production of Seafood.
Comparative advantage suggests that each country should specialize in the production of the good for which it has the lower opportunity cost. Since Country A has the comparative advantage in Petroleum, it is most efficient for Country A to focus on the petroleum industry.
Examples
Imagine two lemonade stands, one run by Alice and the other by Bob, both trying to decide whether to make lemonade or iced tea. If Alice can make lemonade much faster than Bob, even if she is also slightly faster at making iced tea, she should specialize in the item where she has the biggest relative advantage (the lower opportunity cost). By specializing and potentially trading, both Alice and Bob can maximize their total output and efficiency, demonstrating how comparative advantage works in real-world resource allocation.