If individuals A and B can both produce only goods X and Y,and A does not have a comparative advantage in the production of either X or Y,then we know
A)B has an absolute advantage in the production of X and Y.
B)A and B have the same opportunity costs of production for X and for Y.
C)B has a comparative advantage in the production of both X and Y.
D)the gains from trade will be large but only in one direction.
E)A must have lower opportunity costs of production for both goods.

Question

Quizplus · Accepted Answer

If A does not have a comparative advantage in the production of either X or Y, then their opportunity costs of production for X and Y must be equal to those of B. Therefore, A and B have the same opportunity costs of production for both goods, making B not having a comparative advantage in the production of both X and Y. The gains from trade will be based on both parties' ability to specialize in producing the good they have a comparative advantage in, which is not applicable in this scenario as A and B have the same opportunity costs for both goods.

If Individuals a and B Can Both Produce Only Goods