A Korean worker can produce 10 cars per month or grow 1500 kg of wheat per month and an American worker can produce four cars or 1700 kg of rice per month.Korea and the US can both gain if Korea makes more cars and exports them to the US in exchange for imports of increased output of Australian rice.

Question

Quizplus · Accepted Answer

This is an example of comparative advantage. Korea has a comparative advantage in producing cars, while the US has a comparative advantage in producing rice. By specializing in their respective areas of comparative advantage and then trading with each other, both countries can increase their overall output and welfare.

A Korean Worker Can Produce 10 Cars Per Month or Grow