Assume that only two countries, A and B, exist.

-Refer to the table above. If you are told that Country B is very much richer than Country A, then the correct answer is
A) country B will export good S.
B) country A will export good S.
C) both countries will export good S.
D) trade will not occur between these two countries.
E) both countries will import good S.

Question

Assume that only two countries, A and B, exist.
 
-Refer to the table above. If you are told that Country B is very much richer than Country A, then the correct answer is
A) country B will export good S. 
B) country A will export good S. 
C) both countries will export good S. 
D) trade will not occur between these two countries. 
E) both countries will import good S.

Quizplus · Accepted Answer

Given that Country B is much richer than Country A, it implies that Country B has a higher opportunity cost for producing good S compared to Country A. Therefore, according to the principle of comparative advantage, Country B will import good S from Country A, where it is cheaper to produce, and focus on producing goods in which it has a lower opportunity cost. This leads to Country B exporting other goods that it can produce more efficiently relative to good S.

Assume That Only Two Countries, a and B, Exist