Suppose that an hour of work in Germany can produce 5 pastries or 4 sausages. In Denmark, an hour of work produces 4 pastries or 3 sausages.  Which country has the absolute advantage in pastries? In sausages?  Calculate the opportunity cost of each good in each country. Which country has the comparative advantage in each good? Why?

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.