Suppose there are only 2 nations A and B, and only two goods, x and y. If nation A produces only x, it can make 16x per day. If nation A produces only y, it can make 4y per day. If nation B produces only x, it can make 20x per day. If nation B produces only y, it can make 4y per day. After trade begins, nation _______ will specialize in the production of x and nation _______ will specialize in the production of y.

Question

Quizplus · Accepted Answer

Nation A has a comparative advantage in producing x as it can produce 16x per day while nation B can only produce 20x per day. On the other hand, nation B has a comparative advantage in producing y as both nations can produce 4y per day but nation B has a lower opportunity cost for producing y due to its higher production capacity for x. Therefore, if they specialize in producing the good they have a comparative advantage in, they can maximize their total production and benefit from trade.

Suppose There Are Only 2 Nations a and B, and Only