U.S. pharmaceutical companies sell drugs to Kenya, and Kenyan farmers sell flowers to the U.S. This pattern of trade suggests that the U.S. is the low-opportunity-cost producer of drugs and Kenya is the low-opportunity-cost producer of flowers.

Question

Quizplus · Accepted Answer

This is because both countries are specializing in producing and exporting the goods where they have a comparative advantage, meaning the opportunity cost of producing one good is lower for one country compared to the other. The U.S. has a comparative advantage in producing drugs, while Kenya has a comparative advantage in producing flowers. Therefore, both countries benefit from specializing in their areas of comparative advantage and engaging in trade, resulting in a mutually beneficial outcome.

US Pharmaceutical Companies Sell Drugs to Kenya, and Kenyan Farmers