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Fact 2.3.2
Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in a hour.
-Complete the following sentence.Given Fact 2.3.2,
A)there will be gains from trade if Agnes specializes in the production of X and Brenda in Y.
B)there will be gains from trade only if Agnes becomes faster at producing X.
C)there will be gains from trade, no matter what Brenda and Agnes specialize in, as long as they specialize.
D)there will be no gains from trade because Agnes has an absolute advantage.
E)there will be gains from trade only if Agnes specializes in the production of Y and Brenda in X.

Question

Quizplus · Accepted Answer

Agnes has a comparative advantage in producing X since she can produce 1 unit of X in the same amount of time it takes her to produce 1 unit of Y, while Brenda has a comparative advantage in producing Y since she can produce 4 units of Y in the same amount of time it takes her to produce 2 units of X. By specializing in their respective areas of comparative advantage (Agnes in X and Brenda in Y), they can produce more of both goods than if they each tried to produce both goods on their own, leading to gains from trade.

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