Assume that two countries (Home and Foreign) each produce two goods
(corn and wheat) under constant cost production.Home produces 0.5
Ton of corn or a ton of wheat with a day of labor.Without trade (in
Autarky), Home's daily production is 20 tons of wheat and 10 tons of
Corn.Now suppose that Home has the opportunity to trade with Foreign
At an international price of corn equal to a ton of wheat per ton of corn.
In which product will Home find its comparative advantage?
A)wheat
B)corn
C)Home will find its competitive advantage in neither corn nor wheat.
D)Home will find its competitive advantage in both corn and wheat.

Question

Quizplus · Accepted Answer

Home will find its comparative advantage in producing wheat as it can produce one ton of wheat with one day of labor compared to 0.5 tons of corn. This means that Home has a lower opportunity cost of producing wheat and can produce it more efficiently than corn. With trade, Home should specialize in producing wheat and trade it for corn with Foreign.

Assume That Two Countries (Home and Foreign) Each Produce Two