If Country A can produce an extra plane by giving up two boats,and Country B can produce an extra plane by giving up three boats,then
A) Country A has a comparative advantage over Country B in the production of planes.
B) Country B has a comparative advantage over Country A in the production of planes.
C) the two countries have no incentive to trade with one another.
D) Country A would like to trade with B, but B cannot gain by trading with A.
E) Country A has an absolute advantage in producing planes and a comparative advantage in producing boats.

Question

Quizplus · Accepted Answer

A country has a comparative advantage in a particular good if it can produce that good at a lower opportunity cost than another country. In this case, Country A has a lower opportunity cost of producing planes as it only needs to give up two boats, while Country B needs to give up three boats. Hence, Country A has a comparative advantage over Country B in the production of planes. Therefore, both countries have an incentive to trade with each other to maximize their benefits from specializing in the production of goods in which they have a comparative advantage.

If Country a Can Produce an Extra Plane by Giving