Chile allows trade with the rest of the world.We know that Chile has a comparative advantage in producing lemons if we know that
A) Chile imports lemons.
B) the world price of lemons is higher than the price of lemons that would prevail in Chile if trade with other countries were not allowed.
C) consumer surplus in Chile would exceed producer surplus in Chile if trade with other countries were not allowed.
D) All of the above are correct.

Question

Quizplus · Accepted Answer

If the world price of lemons is higher than the price that would prevail in Chile without trade, it means that other countries value Chilean lemons more highly than Chile does itself. Therefore, by exporting lemons, Chile can earn more income than it would by producing other goods for domestic consumption. This indicates that Chile has a comparative advantage in producing lemons. Options A and C are not necessarily true - Chile may import lemons for various reasons, and consumer and producer surplus would depend on the specific conditions of the market.

Chile Allows Trade with the Rest of the World