The table below shows the maximum daily output of Biofuel (in millions of litres) or Microchips (in thousands) that Country X and Country Y can produce using the same quantity of resources.
| Country | Biofuel (million litres) | Microchips (thousands) |
|---|---|---|
| Country X | 12 | 4 |
| Country Y | 8 | 8 |
According to the theory of comparative advantage, which one of the following statements is correct?
Country X has a comparative advantage in Biofuel and a mutually beneficial terms of trade would be 1 million litres of Biofuel1\text{ million litres of Biofuel}1 million litres of Biofuel for 1.2 thousand Microchips1.2\text{ thousand Microchips}1.2 thousand Microchips.
Country Y has an absolute advantage in both goods, meaning it should specialise in both and not engage in international trade.
Country Y has a comparative advantage in Microchips, and a mutually beneficial terms of trade would be 1 thousand Microchips1\text{ thousand Microchips}1 thousand Microchips for 2 million litres of Biofuel2\text{ million litres of Biofuel}2 million litres of Biofuel.
Country X has a comparative advantage in Microchips because its opportunity cost of producing 1 thousand Microchips1\text{ thousand Microchips}1 thousand Microchips is 0.33 million litres of Biofuel0.33\text{ million litres of Biofuel}0.33 million litres of Biofuel.
