If individuals A and B can both produce only goods X and Y, and A does not have a comparative advantage in the production of either X or Y, then we know
A)B has an absolute advantage in the production of X and Y.
B)A and B have the same opportunity costs for X and for Y.
C)B has a comparative advantage in the production of both X and Y.
D)the gains from trade will be large but only in one direction.
E)A must have lower opportunity costs of production for both goods.

Question

Quizplus · Accepted Answer

If A does not have a comparative advantage in the production of either X or Y, then it means that A's opportunity cost of producing one good is the same as the other. Therefore, A and B have the same opportunity costs for both X and Y. This also means that B cannot have a comparative advantage in the production of both X and Y, as that would mean B's opportunity cost for producing one good is lower than A's for both goods. Thus, the only logically consistent option is B.

If Individuals a and B Can Both Produce Only Goods