Scenario: Consider two economies, Beta and Zeta. Each farmer in Beta can grow 1,000 pounds of apples or 500 pounds of oranges in a year. Each farmer in Zeta can grow 400 pounds of apples or 1,200 pounds of oranges in a year.
-Refer to the scenario above.Which of the following statements is true in this case?

Question

Quizplus · Accepted Answer

Zeta has an absolute advantage in producing oranges, and Beta has an absolute advantage in producing apples. However, comparative advantage considers the opportunity cost of producing a good. In Beta, to produce 1,000 pounds of apples, they would have to give up producing 500 pounds of oranges. In Zeta, to produce 1,200 pounds of oranges, they would have to give up producing 400 pounds of apples. Therefore, Beta has a comparative advantage in producing oranges, and Zeta has a comparative advantage in producing apples. So, it would be beneficial for Zeta to specialize in producing oranges, and Beta should specialize in producing apples. Engaging in foreign trade based on their respective comparative advantages will result in gains for both economies.

Scenario: Consider Two Economies, Beta and Zeta