Figure 3.1China - US Trade Possibilities

-Considering Figure 3.1 prior to trade both China's and the US production of textiles and aircraft is 19 and 9.Which of the following represents the pre-trade situation?
A) China has a comparative advantage in the production of textiles and the US has a comparative advantage in the production of aircraft.
B) China has a comparative advantage in the production of aircraft and the US has a comparative advantage in the production of textiles.
C) China has an absolute advantage in the production of both textiles and aircraft.
D) The US has an absolute advantage in the production of both textiles and aircraft.

Question

Figure 3.1China - US Trade Possibilities
 
-Considering Figure 3.1 prior to trade both China's and the US production of textiles and aircraft is 19 and 9.Which of the following represents the pre-trade situation?
A) China has a comparative advantage in the production of textiles and the US has a comparative advantage in the production of aircraft. 
B) China has a comparative advantage in the production of aircraft and the US has a comparative advantage in the production of textiles. 
C) China has an absolute advantage in the production of both textiles and aircraft. 
D) The US has an absolute advantage in the production of both textiles and aircraft.

Quizplus · Accepted Answer

According to Figure 3.1, prior to trade, both China's and the US production of textiles and aircraft is 19 and 9. Therefore, neither country has an absolute advantage in the production of both products. However, China's opportunity cost of producing textiles is lower than the US's opportunity cost of producing textiles while the US's opportunity cost of producing aircraft is lower than China's opportunity cost of producing aircraft. This means that China has a comparative advantage in textiles and the US has a comparative advantage in aircraft. Therefore, option A is the correct answer.