Solved

Saudi Arabia Produces Oil More Cheaply Than Iran but the Opportunity

Question 151

Multiple Choice

Saudi Arabia produces oil more cheaply than Iran but the opportunity cost of producing oil in Saudi Arabia is higher than in Iran. Saudi Arabia produces figs more cheaply than Iran but the opportunity cost of producing figs in Saudi Arabia is lower than in Iran. Should they trade? Who should produce what?


A) No, Saudi Arabia is more efficient in both oil and figs and will lose by trading.
B) Yes, because Saudi Arabia has an absolute advantage in figs, it should produce figs and Iran should produce oil.
C) Yes, because Saudi Arabia has a comparative advantage in oil, it should produce oil and Iran produce figs.
D) Yes, because Iran has a comparative advantage in oil, it should produce oil and Saudi Arabia produce figs.
E) No, because the terms of trade would be negative for Iran.

Correct Answer:

verifed

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Related Questions

Unlock this Answer For Free Now!

View this answer and more for free by performing one of the following actions

qr-code

Scan the QR code to install the App and get 2 free unlocks

upload documents

Unlock quizzes for free by uploading documents