Suppose that Japan and India are both engaged in the production of radios and rice, and that Japan has an absolute advantage in the production of both goods. If India has a lower opportunity cost for producing rice, then

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India having a lower opportunity cost in producing rice means it sacrifices less of other goods (in this case, radios) to produce rice compared to Japan. This establishes India's comparative advantage in rice production, despite Japan's absolute advantage in both goods. Comparative advantage, not absolute advantage, is the basis for mutual gains from trade, as it allows each country to specialize in the production of goods for which they have a lower opportunity cost, leading to increased overall efficiency and potential for trade benefits.

Suppose That Japan and India Are Both Engaged in the Production