The country of "Econoland" can use its resources to produce either 500 tons of crab or 200 tons of plywood. Its rival, "Arcadonia," is able to produce either 200 tons of crab or 100 tons of plywood.From this passage, it can be concluded that Arcadonia should specialize in producing plywood. Econoland has a comparative advantage in plywood. Arcadonia has an absolute advantage in the production of both crab and plywood. Econoland should specialize in producing plywood, and trade them with Arcadonia for crabs.

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Comparative Advantage and Absolute Advantage Analysis

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