Suppose that, with constant opportunity costs, Spain can produce 2,000 units of clothing if it devotes all of its resources to clothing production and 8,000 units of wheat if it devotes all of its resources to wheat production. If Spain is opened to trade at a world price ratio of 1 wheat:0.4 clothing (or 1 clothing:2.5 wheat), Spain will export __________; if the world price ratio were 1 wheat:4 clothing (or 1 clothing:2.5 wheat), Spain would __________.
A) wheat; also export wheat
B) wheat; would export clothing
C) clothing; also would export clothing
D) clothing; would be indifferent to trade

Question

Quizplus · Accepted Answer

Spain has a comparative advantage in wheat production because it can produce more wheat than clothing with the same resources. At a world price ratio of 1 wheat:0.4 clothing, Spain will export wheat because it can get more clothing by exporting wheat and importing clothing than by producing clothing domestically. If the world price ratio were 1 wheat:4 clothing, Spain would also export wheat because it would still have a comparative advantage in wheat production.

Suppose That, with Constant Opportunity Costs, Spain Can Produce 2,000