Country A can produce one Outfit in 6 hours and one unit of Corn in 2...

Country A can produce one Outfit in 6 hours and one unit of Corn in 2 hour. Country B can produce one Outfit in 17 hours and one unit of Corn in 6 hours. Which of the following statements is true?

Group of answer choices

If trade opens, Country A will tend to specialize in the production of Outfits while B will tend to specialize in the production of Corn – then gains from trade would typically be possible.

None of the other options.

If trade opens, Country B will tend to specialize in the production of Outfits while A will tend to specialize in the production of Corn – then gains from trade would typically be possible.

Country B has a comparative advantage in Corn and will specialize in the production of Corn if trade opens.

Country B has an absolute advantage in the production of both Corn and Outfits.

Solutions

Expert Solution

	Labor required to produce 1 outfit	Labor required to produce 1 unit of corn
Country A	6	2
Country B	17	6

Country A has an absolute advantage in producing outfit and corn because it can produce the same amount of outfit and corn by using less labor than Country B.

Country A's opportunity cost for producing outfit = 6/2 = 3 units of corn

Country B's opportunity cost for producing outfit =17/6= 2.83 units of corn.

Because country B has a lower opportunity cost for producing outfits, this implies Country B has a comparative advantage in the production of outfits and would be completely specializes in outfit production .
Similalrly, Country A has a comparative advantage in the production of corn and would be competely specializes in corn production.

Hence, option(C) is correct i.e if trade opens , Country B will tend to specialize in the production of outfits while A will tend to specialize in the production of corn -then gains from trade would typically be possible.

Rahul Sunny answered 1 year ago

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