Certain kinds of tropical fruits are impossible to grow outdoors in the United States.Suppose,however,that in order to create jobs in Wyoming,the U.S.government offered extensive subsidies to firms to produce bananas.With the subsidies,firms could build greenhouses and offer the fruit at world prices.
A)The United States now has a comparative advantage in bananas.
B)The United States has a comparative advantage, but is not competitive.
C)The United States is competitive, but does not have a comparative advantage.
D)The United States has a comparative advantage and is competitive.

Question

Quizplus · Accepted Answer

The United States is competitive because the subsidies allow firms to offer bananas at world prices, but it does not have a comparative advantage because the need for subsidies and greenhouses indicates that bananas cannot be produced as efficiently in the U.S. as in their natural, tropical environments. Comparative advantage refers to the ability to produce goods at a lower opportunity cost, not just being able to produce them at competitive prices through artificial means like subsidies.

Certain Kinds of Tropical Fruits Are Impossible to Grow Outdoors