Assume a two-country two-good two-input model where the following relationships hold: (K/L) U.S. > (K/L) ROW
(K/L) automobiles > (K/L) shoes
Where (K/L) U.S. is the capital-labor ratio in the United States, (K/L) ROW is the capital-labor ratio in the Rest of the World, (K/L) automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L) shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. The relationships shown in here indicate that the United States has a comparative advantage in the production of _____ while the Rest of the World has a comparative advantage in the production of _____.
A) both the goods; neither shoes nor automobiles
B) shoes; automobiles
C) automobiles; shoes
D) neither shoes nor automobiles; both of the goods
Correct Answer:
Verified
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