Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Which of the following statements is true regarding Country A's opportunity cost of a t-shirt?
A) It is lower than that of Country B, so Country A should specialize in t-shirts and trade for avocados.
B) It is higher than that of Country B, so Country A should specialize in avocados and trade for t-shirts.
C) It is higher than that of Country B for both goods, so Country A will not benefit from trade.
D) It is lower than that of Country B for both goods, so Country A will not benefit from trade.

Question

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Which of the following statements is true regarding Country A's opportunity cost of a t-shirt?
A) It is lower than that of Country B, so Country A should specialize in t-shirts and trade for avocados. 
B) It is higher than that of Country B, so Country A should specialize in avocados and trade for t-shirts. 
C) It is higher than that of Country B for both goods, so Country A will not benefit from trade. 
D) It is lower than that of Country B for both goods, so Country A will not benefit from trade.

Quizplus · Accepted Answer

According to the figure, Country A's PPF is steeper than Country B's PPF, indicating that Country A has a higher opportunity cost of producing t-shirts than B. Therefore, Country A should specialize in producing avocados, which it has a comparative advantage in, and trade with Country B for t-shirts, which B has a comparative advantage in producing. This will allow both countries to benefit and increase their overall output.

Refer to the Figure Shown, Which Represents the Production Possibilities