Suppose that a worker in Country A can produce either 25 bananas or 5 tomatoes each year. Country A has 200 workers. Suppose a worker in Country B can produce either 18 bananas or 6 tomatoes each year. Country B has 400 workers. Country B will benefit from trade if the country specializes in _____ because _____
A) bananas; it has a comparative advantage at producing bananas.
B) tomatoes; its opportunity cost of tomatoes is higher than that of Country A.
C) tomatoes; its opportunity cost of tomatoes is lower than that of Country A.
D) bananas; it has an absolute advantage at producing bananas.

Question

Quizplus · Accepted Answer

For Country A, the opportunity cost of one banana is 1/5 tomato (because they can produce either 25 bananas or 5 tomatoes per year). For Country B, the opportunity cost of one banana is 1/3 tomato (because they can produce either 18 bananas or 6 tomatoes per year). Therefore, Country B has a comparative advantage in producing tomatoes, as its opportunity cost of producing tomatoes is lower than that of Country A. This means that Country B can produce tomatoes at a lower opportunity cost than bananas compared to Country A. Specializing in tomatoes and trading with Country A for bananas will allow both countries to benefit.

Suppose That a Worker in Country a Can Produce Either