Table 3-3

-Refer to Table 3-3.If Montana and Missouri trade based on the principle of comparative advantage,Montana will export
A)baskets and Missouri will export birdhouses.
B)birdhouses and Missouri will export baskets.
C)neither good and Missouri will export both goods.
D)both goods and Missouri will export neither good.

Question

Table 3-3
 
-Refer to Table 3-3.If Montana and Missouri trade based on the principle of comparative advantage,Montana will export
A)baskets and Missouri will export birdhouses. 
B)birdhouses and Missouri will export baskets. 
C)neither good and Missouri will export both goods. 
D)both goods and Missouri will export neither good.

Quizplus · Accepted Answer

According to the principle of comparative advantage, a country should specialize in producing the good in which it has the lower opportunity cost and trade with another country that has a comparative advantage in producing the other good. In this case, Montana has a lower opportunity cost of producing baskets (2 compared to Missouri's 4) and Missouri has a lower opportunity cost of producing birdhouses (1 compared to Montana's 2). Thus, it makes sense for Montana to export baskets and Missouri to export birdhouses. Therefore, option B is the correct answer.

Table 3-3 -Refer to Table 3-3.If Montana and Missouri Trade Based on Missouri