Suppose that, in a Classical constant-opportunity-costs framework, country I can produce 15 units of wheat if it devotes all of its resources to wheat production and 45 units of clothing if it devotes all of its resources to clothing production. In a trading situation for this country, if the world price ratio is P_wheat/P_clothing = (or P_clothing/P_wheat = 3), country I would A) export wheat and import clothing. B) export clothing and import wheat. C) be indifferent to trade. D) export either clothing or wheat and import either wheat or clothing - cannot be Determined without more information.

Question

Quizplus · Accepted Answer

Given the production possibilities of country I (15 units of wheat or 45 units of clothing) and the world price ratio (1 wheat = 3 clothing), country I has a comparative advantage in clothing production because it can produce clothing at a lower opportunity cost compared to wheat. Therefore, it would export clothing, where it is more efficient, and import wheat, where it is less efficient.

Suppose That, in a Classical Constant-Opportunity-Costs Framework, Country I Can